Did Illegal Immigrants Pocket Billions In Making Work Pay Tax Credits?

Did Illegal Immigrants Pocket Billions In Making Work Pay Tax Credits?

By Mary Johnson

While the U.S. Treasury predicts the government will run out of cash as early as March 31st, illegal immigrant workers may have pocketed billions in 2009 and 2010 in advance Making Work Pay tax credits for which they are not eligible.  The Making Work Pay tax credit specifically banned people without valid Social Security numbers from receiving the credit.  But because the tax credit was paid in advance in higher paychecks through lower tax withholdings, millions of illegal workers undoubtedly would have received the money, even though they may not have filed a tax return.

Although it’s illegal for immigrants to work in this country without a valid Social Security number, millions of illegal workers readily obtain forged or invalid Social Security numbers and show them to employers to get jobs.  Employers use the invalid Social Security numbers for reporting earnings to the Social Security Administration.

The Social Security Administration maintains a special Earnings Suspense File of wage reports that don’t match the name and Social Security number of those in Social Security records.  According to data from the Social Security Administration, an average of 9,762,500 wage reports per year with invalid names or Social Security numbers were received from 2000 through 2007 for an average of $66.68 billion in wages per year.  That much in wages would be worth more than $4 billion per year in Making Work Pay tax credits in 2009 and 2010 if those trends continue.

The wage reports held in the Social Security Earnings Suspense file also represent a huge hidden time bomb for Social Security and Medicare.  Under current Social Security policy, all earnings, even if based on illegal work, are used to determine entitlement to benefits.  If at some point an illegal worker gains valid work authorization, as he or she would under an “amnesty” or a Totalization agreement, and can produce proof of earnings like old W2s, those earnings would be reinstated to their new Social Security account.  Eventually the individual could file a claim for benefits that might be based, at least in part, on illegal work.

TSCL opposes the payment of Social Security and Medicare benefits that are based on illegal work, and supports legislation that would ban Social Security work credits based on unauthorized earnings from being used to determine entitlement.

Sources:  “Verifying Eligibility for Certain New Tax Benefits Was A Challenge for the 2010 Filing Season,” Treasury Inspector General, September 30, 2010, Ref. No. 2010-41-128