The Earnings Suspense Fund at Social Security

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One of the ironies of the challenging financial future faced by the Social Security Administration is this seldom-discussed fact: Undocumented workers contribute about $13 billion per year to the Social Security Trust Fund, and only get back a small fraction, adding a bit of black ink to a balance sheet in sore need of a boost. As President Obama mulls whether and when to enact executive orders that would affect the status of up to 11 million undocumented immigrants in the country, these Social Security payments are a proxy of sorts for the potential power of these workers who now stand in the shadows of the economy.

These immigrants are often accused of creating outsize social services costs, but in this important instance the opposite is true. Undocumented workers using fake, invalid, or borrowed Social Security numbers are subject to payroll taxes but usually receive nothing back. The extent of their contributions hints at the vast scale of the underground economy — and at the economic benefits that could be harnessed by giving undocumented workers a legal way to move out of it.

The chief actuary of the Social Security Administration recently told Vice News that, out of the estimated 7 million unauthorized workers currently in the US labor force, about 3 million use either false or expired Social Security numbers. The payroll taxes paid by these unauthorized workers go into the Social Security’s “Earnings Suspense File” — in effect, money without a lawful home.

“You could say legitimately that had we not received the contributions that we have had in the past from undocumented immigrants . . . that would of course diminish our ability to be paying benefits for as long as we now can,”. Undocumented immigrants have contributed $100 billion into Social Security over the last decade.

Major immigration reform legislation would provide work authorization and Social Security numbers for an estimated 11 million immigrants working here illegally. But without changes to protect Social Security, illegal workers whose status later changes could become entitled to benefits based on jobs worked under fake and invalid Social Security numbers. Social Security could be on the hook for hundreds of billions in new liabilities according to a new  research report based on data from the Social Security Administration.

Unauthorized immigrants getting jobs show employers false or invalid Social Security numbers. When the Social Security Administration receives copies of W2s in which the name and Social Security do not match those on Social Security’s records, they go into the Earnings Suspense File (ESF). The W2s remain on file until the earnings can be reconciled with the real worker, even if that occurs years later. Since 2000, the Social Security Administration has received about 9.3 million such W2s per year on average, representing more than $69.4 billion per year in earnings.

The earnings reported to the ESF over the past 11 years now total more than $763.5 billion, unadjusted for inflation. “Those earnings are important, because that’s what the Social Security Administration uses to determine entitlement and initial benefit amounts — not the amount of taxes paid in,” .

Although Social Security is aware of the problem, no government estimates of the potential future cost of benefits based on work under fake Social Security numbers exist.

Immigration advocates say that the taxes on earnings worked under invalid Social Security numbers help boost Social Security’s financing and that workers would have little chance of collecting benefits. “But that would change under immigration reform that provides work authorization”. “Work authorization and a valid Social Security number are the two requirements that would allow former unauthorized workers to file a claim for benefits.”

That could have significant implications for future Social Security costs because, under current law, the fraudulent use of Social Security numbers to gain employment is not penalized. “One would think that the earnings under fake Social Security numbers would not be used to calculate Social Security benefits. But to the contrary, under current policies, those earnings can be reinstated — no questions asked”.

Social Security uses all earnings to determine entitlement even for jobs worked under fake Social Security numbers. If workers have kept evidence of earnings, like copies of their W2s, tax return earnings under invalid Social Security numbers would be reinstated to the new valid number.

“Congress is considering Social Security changes that would cut the benefits of U.S. citizens and authorized workers who paid into the system under valid Social Security numbers”. “Yet our current polices reward people for the use of fraudulent Social Security numbers, undermining the financial solvency of the program”.

“You could say legitimately that had we not received the contributions that we have had in the past from undocumented immigrants . . . that would of course diminish our ability to be paying benefits for as long as we now can,”. Undocumented immigrants have contributed $100 billion into Social Security over the last decade.

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