By Mary Johnson, Social Security and Medicare Policy Analyst
for The Senior Citizens League, February 2013
An inconsistency between U.S. immigration law and Social Security policy threatens to add substantial, but poorly understood costs to Social Security at a time when lawmakers are considering major changes that would reduce benefits to U.S. seniors and future beneficiaries. Current law requires immigrants to have work authorization at the time a Social Security number is assigned or at some later time, in order to become entitled to Social Security benefits.2 Immigrants who obtain authorization to work in this country, as they would under immigration rule changes, reform, or amnesty, may eventually claim benefits if they meet other qualifications. When determining entitlement for insured status, and when calculating the initial retirement benefit, the Social Security Administration (SSA) uses all reported earnings from covered employment in the United States, even if the earnings were from "unauthorized" work and fraudulent documents were used.2
This policy benefits immigrants who have broken U.S. immigration and employment laws and have worked using stolen, fraudulent, or invalid Social Security numbers. Although immigration law forbids work without authorization, immigrants use invalid Social Security numbers (SSNs) to get jobs. When the name and SSN do not match those in SSA's records, the wage report is held in the Earnings Suspense File (ESF) until the discrepancy can be corrected. Since 2000, SSA has received, on average, more than 9.3 million suspicious wage reports annually.
Data indicate that, in recent years, the ESF grew at an unprecedented pace. Cumulative wages since 1990, after the 1986 amnesty, now total more than $952.4 billion, unadjusted for inflation. Although immigration reform advocates point to this as evidence that illegal workers will not benefit from paying into the system, this ignores the effect of immigration reform. A significant portion of these wages could later be reinstated to valid Social Security numbers if immigrants working illegally gain work authorization, and have kept copies of their W2s or other evidence of earnings.
Because earnings are used to determine entitlement, this poses a substantial long-term liability to the Social Security Trust Fund and would worsen solvency. It's widely anticipated that Social Security benefits will be cut, perhaps significantly, at some point in the relatively near future. This inconsistency between Social Security policy and immigration law suggests that newly work-authorized immigrants may benefit in the future based on their unauthorized work, at least to some extent, at the expense of other workers who paid into the system legally over their entire working careers.
Immigration Reform Would Give Access to Social Security
Major immigration reform legislation under discussion would provide work authorization, and with it valid Social Security numbers, to an estimated 11.1 million immigrants in this country illegally.3 Work authorization and a valid Social Security number are the two key requirements for illegal workers to later gain entitlement to Social Security benefits. In 2004, Congress passed the Social Security Protection Act (P.L. 108-203) requiring immigrants to have work authorization at the time a SSN is assigned or at some later time, in order to become entitled.4
Despite tightening the law, Congress did not fix a policy loophole that would have significant long-term impact on Social Security's future liabilities under immigration reform. When determining entitlement for insured status, and in calculating the initial retirement benefit amount, the Social Security Administration uses all reported earnings from covered employment in the United States, even if the earnings were from illegal or "unauthorized" work and invalid Social Security numbers were used.
Although immigration law forbids work without authorization, undocumented immigrants use illegally obtained or invalid SSNs to get jobs. Employers withhold payroll taxes and report earnings to SSA using the numbers. Currently there is no official published data on the amount of money paid into the Social Security system by immigrant workers, whether legal or illegal.5 Social Security's Chief Actuary, Stephen C. Goss, however, has been quoted in the news media as saying that about three-quarters of "other–than–legal" immigrants pay payroll taxes.6
The Treasury Inspector General for Tax Administration also reported that, during the 2010 tax-processing year, more than three million returns were filed with Individual Taxpayer Identification Numbers (ITINs). The Internal Revenue Service provides ITINs to individuals who are not authorized to work in the U.S. and not eligible for an SSN for employment in order to facilitate their filing of tax returns.7
False and invalid Social Security numbers (SSNs) are supplied to employers by workers, virtually without fear of any serious or immediate consequence. Unauthorized immigrants work using numbers belonging to another person, numbers that have been made up, expired visas, or "non-work" SSNs like ITINs, which look similar to SSNs. Employers report the wages using these numbers. In addition, immigrants who are in the U.S. illegally may work under one or more aliases.
Immigration reform advocates point to the payroll taxes that are withheld from the paychecks of illegal workers, saying that they have little chance of benefiting. In addition, such advocates say that the unclaimed revenues help Social Security's solvency. The unauthorized wages reported under invalid SSNs, however, also represent a rapidly growing future benefit liability under a full amnesty or even under limited immigration reforms that provide only work authorization and a valid SSN.
In addition, an entire category of illegal immigrant workers exists who are not affected by the 2004 law. Individuals in that category who received a Social Security number issued prior to 2004 can legally claim Social Security even if he or she never received work authorization. In other words, benefits could be based entirely on illegally performed work.8
The Potential Cost of Benefits Based on Illegal Work Is Growing
To date, no government agency has released an estimate of the potential cost of unauthorized work to the Social Security Trust Fund. The best indication is contained in the Social Security Administration's "earnings suspense file" (ESF). Each year the Social Security Administration processes approximately 240 million W2s from employers.9 When Social Security receives a name or SSN on a W-2 that does not match SSA's records, the wage report goes into the ESF while the SSA attempts to reconcile the discrepancy. During the past eleven years, from 2000 through 2010, the file grew at an unprecedented pace—the fastest since the inception of Social Security in 1937. This occurred even with two years of fewer "mismatched" wage reports during the high unemployment period spanning 2009 and 2010.
The data since 2000 indicates that there has been a significant jump in both the number of these mismatched reports and the value of wages reported. SSA Inspector General Patrick P. O'Carroll stated in 2006 testimony before Congress that "we believe the chief cause of wage items being posted to the [earnings suspense file] instead of an individual's earnings record is unauthorized work by noncitizens."10
From 2000 - 2010, the total number of mismatched wage reports almost doubled, jumping 97% from about 52 million reported from 1990 - 1999 to 102.6 million from 2000 – 2010. The number of mismatched wage reports peaked in 2006 at 10.9 million and averaged 9.3 million per year during the period.
High unemployment did not appear to affect the number of wage reports until 2009, when 7.7 million reports were received, down from 9.5 million in 2008. In 2010 the number continued to drop slightly to 7.3 million wage reports, mirroring the high unemployment in the overall economy.
Growth was driven in higher average earnings since the 1990s, which grew by 42% through 2010 after adjusting for inflation. During the 1990s, wages averaged $5,317 per work report per year (adjusted to 2010 dollars), compared to an average of $7,558 per work report in the period from 2000 - 2009. Higher wages would potentially mean higher potential future payouts for benefits, because wages determine the amount of the benefit.
Table 1: Number of Earnings Reports and Related Amounts in the ESF by Decade
|Decade||Number of Reports (millions)||Uncredited Earnings(billions, not adjusted for inflation)|
Source: GAO analysis of SSA data, February 2005, GAO-05-154. 2000-05 compiled, see footnote detail below.
Table 2: Earnings Suspense File 2000-2010 Annual Data
|Year||Number of Reports* (millions)||Uncredited Earnings (billions) (not adjusted for inflation)|
|Totals||102.6 million||$763.5 billion|
Table 3: Earnings Suspense File Annualized Comparison by Decade
|Decade||Average Annual Number of Reports* (millions)||Average Annual Uncredited Earnings (billions) (not adjusted for inflation)|
Fraudulent Use of Social Security Numbers Is Not Penalized
Mismatched earnings reports remain in the ESF until SSA obtains evidence to link the unidentified earnings to a valid SSN – a process termed "earnings reinstatement."22 Reinstatements can occur any time, even years later.
Immigration reform initiatives that provide work authorization, as well as a valid Social Security number, together with a pending Social Security Totalization Agreement with Mexico (if it takes effect) could mean that a very substantial amount of earnings in the ESF file could be claimed and reinstated at some point in the future. Because earnings are used both to determine the number of quarters of coverage worked for insured status, and to calculate the initial benefit, this poses a substantial liability to the Social Security Trust Fund, worsening its solvency.
Once undocumented workers obtain a valid SSN, no law prohibits the Social Security Administration from using unauthorized earnings in determining entitlement to Social Security, even when invalid documents were used to get jobs. Individuals can provide SSA with evidence of earnings reports from unauthorized employment prior to receiving their SSN. Their earnings will be reinstated under their valid SSN. When a person files for benefits, a SSA employee reviews the earnings record with the worker and assists to establish any earnings not shown or not correctly posted.
Ineffective Workplace Enforcement–A Contributing Factor
In 2005 the Government Accountability Office (GAO) released a report documenting the growth of the ESF, saying a number of factors contribute to the earnings reports, particularly minimal work site immigration enforcement efforts.23 The GAO also reported that the percentage of foreign-born persons receiving reinstatements has grown dramatically over time, from about 8% in 1986 to nearly 21% in 2003. The country of birth of foreign-born persons receiving the greatest number reinstatements is Mexico.
The extent of probable illegal work related to such reinstatements has also been growing. "With more recent work years and earnings, the percentage of reinstatements to foreign-born persons with work activity prior to SSN issuance is significantly higher—an average of about 32% of such reinstatement occurring between 1986-2003. Further, in some years, these reinstatements for potentially unauthorized work have been in excess of 50% of all reinstatements to foreign-born recipients," the GAO has said.24
These trends are likely to continue to climb in years to come. Yet no estimates of the cost of benefits based on work before authorization appears to have been conducted by Social Security or any other government agency. Without this data, Congressional lawmakers will be challenged in getting accurate estimates about the potential long-term costs to Social Security of immigration reforms.
Determining Entitlement on Earnings Prior to Authorization Undermines Social Security
In 2010, for the first time since 1983, Social Security started paying out more in benefits than if received in cash revenues. The federal government now borrows to cover payments to current beneficiaries, increasing the amount of the federal debt. The question of how long our government can continue to borrow to meet Social Security's cash revenue shortfalls and fund the rest of the federal budget has been debated intensively since. In addition, the Congressional Budget Office recently forecast that the Social Security Trust Fund that pays disability benefits will be fully insolvent during the government fiscal year 2016, which starts October 1, 2015.25
The potential cost in benefits based on illegal work could add very substantial new future liabilities. Failure to address this inconsistency of law that allows Social Security based on unauthorized work could result in newly legalized immigrants receiving benefits for earnings received while breaking U.S. laws, at the same time benefits are cuts and taxes increased on workers who paid into the system legally over their entire careers.
When invalid Social Security numbers are used to get jobs, why would the earnings under those numbers be considered valid for determining entitlement to Social Security benefits? Congress could improve Social Security solvency by enacting legislation that prohibits the crediting of unauthorized earnings for the purposes of benefit entitlement and the calculation of retirement benefits.
1 "Social Security Benefits For Noncitizens," Congressional Research Service, July 20, 2006, RL32004.
2 Statement of the Honorable Patrick P. O'Carroll, Inspector General, Social Security Administration Before the Subcommittee on Social Security of the House Committee on Ways and Means, March 02, 2006.
3 "Unauthorized Immigrants: 11.1 Million in 2011," Pew Hispanic Center, December 6, 2012.
4 "Social Security Benefits For Noncitizens," Congressional Research Service, July 20, 2006, RL32004.
5 "Social Security Benefits for Noncitizens: Current Policy and Legislation," Congressional Research Service, July 20, 2006, RL32004.
6 "Illegal Immigrants Are Bolstering Social Security With Billions," Eduardo Porter, The New York Times, April 5, 2005.
7 "Individuals Who Are Not Authorized To Work In The United States Were Paid $4.2 Billion In Refundable Credits," Treasury Inspector General For Tax Administration, July 7, 2011, #2011-41-061.
8 "Social Security Benefits for Noncitizens: Current Policy and Legislation," Congressional Research Service, February 1, 2008, RL32004.
9 Social Security Administration, February 6, 2013.
10 Statement of the Honorable Patrick P. O’Carroll, Inspector General, Social Security Administration Before the Subcommittee on Oversight of the House Committee on Ways and Means, February 16, 2006.
11 Social Security Administration Benefits Related to Unauthorized Work, James G. Huse, Jr., Inspector General, Social Security Administration, March 2003, A-03-03-23053.
12 "IRS Needs to Consider Options For Revision Regulations to Increase the Accuracy of Social Security Numbers on Wage Statements," Government Accountability Office, August 2004, GAO-04-712, page 6.
13 "Better Coordination Among Federal Agencies Could Reduce Unidentified Earnings Reports," Government Accountability Office, February 2005, GAO 05-154, page 1.
14 "Social Security Benefits for Noncitizens: Current Policy and Legislation," Congressional Research Service, July 20, 2006, RL32004.
15 "Information About the Earnings Suspense File," email from Mark Hinkle, Social Security Administration, March 9, 2007.
16 Earnings Suspense File Data for 2005, Social Security Administration, May 12, 2008.
17 Earnings Suspense File Data through 2007, Social Security Administration, December 9, 2009.
19 Earnings Suspense File Data, Social Security Administration, March 2, 2012.
21 Earnings Suspense File Data, Social Security Administration, January 30, 2013.
22 "Better Coordination Among Federal Agencies Could Reduce Unidentified Earnings Reports," GAO, February 2005, GAO-05-154, page 1.
23 "Better Coordination Among Federal Agencies Could Reduce Unidentified Earnings Reports," GAO, February 2005, GAO-05-154, page 27 and 28.
24 Ibid. pages 20 and 21.
25 SS-OASDITF-CBO020513 Combined Old-Age, Survivors, and Disability Insurance Trust Funds, Congressional Budget Office, February 2013.