The Social Security Administration receives billions in free cash each year from an unlikely source: undocumented immigrants.
This group paid an estimated $25.7 billion in Social Security taxes in 2022, according to a recent analysis from the Institute on Taxation and Economic Policy, a left-leaning tax research group. Since unauthorized workers cannot collect retirement and other Social Security benefits without a change in their immigration status, the billions they pour into the program effectively serve as subsidies for American beneficiaries.
President-elect Donald J. Trump has vowed to implement the nation’s largest mass deportation program to date, and to impose legal restrictions and measures on immigration. It is difficult to predict whether the incoming administration will be able to follow through on their aggressive promises, among them to bring home the estimated 11 million undocumented workers currently in the United States.
But if the White House follows suit, economists predict the economy could cost Social Security nearly $20 billion a year, according to experts at the Social Security Administration, which sends benefits to 68 million Americans every month. , totaling $1.5 trillion last year.
Social Security has faced funding shortfalls for years, in part because of demographic change. Declining birth rates mean that fewer people are paying into the system, thousands of baby boomers are retiring every day, and retirees are collecting benefits for longer.
“Americans’ circumstances are becoming more difficult to fund programs like Social Security,” said Shai Akabas, executive director of the economic policy program at the Bipartisan Policy Center, a nonprofit organization. “The number of people immigrating to this country is one of the things that has pushed that trend and helped fill the gap left by the aging workforce.”
The trust fund that pays Social Security retirement benefits is expected to run out in 2033, when tax revenues will be sufficient to pay 79 percent of scheduled benefits. That means beneficiary checks will be cut by 21 percent if Congress does nothing. (Legislative action is expected, although there is debate about how best to fix the system.)
Major changes in immigration policy could have serious consequences for Social Security. The rate of immigration is expected to drive population growth — and account for all of the population growth since 2040 because America’s fertility rates are so low, according to a 2024 report from the Congressional Budget Office.
“If the immigrant workforce declines, that will likely worsen Social Security’s financial situation in the near term and require significant changes elsewhere,” said Mr. Akabas of the Bipartisan Policy Center, recently examined the issue. “That said, the broader questions of immigration policy and border security require careful consideration that goes beyond their impact on the Public Safety program.”
To get an idea of how different levels of immigration – both legal and otherwise – can change the program’s finances over the long term, we can look at the latest annual report of the trustees of the Social Security Administration, which predicts the financial health of the trust fund’s combined retirement and disability benefits over a period of years -75 from 2024. (Social Security’s deficit is often measured as a percentage of the total payroll covered by the program, or all earnings less taxes paid, the program’s dedicated funding source.)
The best estimate of the trustees is taking in 1.24 million immigrants each year. At that rate, the plan needs an additional 3.5 percent of its taxable income to be fully solvable. But if the number of annual immigrants drops to 829,000 (its lower estimate), the long-term plan’s funding shortfall could worsen by nearly 10 percent (to 3.9 percent of tax payments from 3.5 percent.).
But if the number of immigrants rose to about 1.7 million a year, the deficit would improve by 10 percent (to 3.1 percent of wages.)
In other words, for every 100,000 immigrants per year, the income gap increases by 0.09 percent of taxable income.
“Many of these people have already started their careers and are beginning to contribute to Social Security immediately, even though they may not claim benefits for years to come, if at all,” the Bipartisan Policy Center said in a report. “This creates a positive effect on the Public Safety system.”
Undocumented workers are still required to pay taxes on any income in the United States, and it is estimated that at least half of them file federal tax returns. But even if they contribute to the taxes paid, they are not allowed to collect any Social Security benefits and many other credits, including the earned income tax credit, which requires all tax filers and dependents to have valid Social Security numbers.
Employers are often required to verify their identity and eligibility to work using the I-9 form, and collect documents as proof. Since people usually need a Social Security number to get a job, undocumented workers who receive checks — instead of being paid in cash, for example — can use fake Social Security numbers, someone else’s number or a number that worked when you had work authorization status.
But when they file their tax returns, they use another number: the nine-digit individual taxpayer identification number, also known as ITINs. The Internal Revenue Service created them in 1996 so that people who don’t qualify or don’t have Social Security numbers can legally file tax returns and comply with tax laws – say, a student visa holder or certain spouses of people with employment visas.
While undocumented workers may fear that their ITIN could be used to deport them, there are protections that prevent the IRS from sharing taxpayer information with other government agencies. Congress will need to take legislative action to change this.
Undocumented workers often file tax returns to show good character, which may later help them in any immigration cases, whether it’s related to deportation or putting them on the path to citizenship.
“They want to connect with the American public, and this is an important way to do that,” said Sarah Lora, a professor of medicine at Lewis & Clark Law School and director of its clinic for low-income taxpayers. “It’s almost a tribute to the tax system,” he said, referring to the attitudes of the undocumented taxpayers he helped restore.
The Institute on Taxation and Economic Policy estimates that undocumented workers pay a total of $96.7 billion in federal, state and local taxes by 2022, a third of which goes to payroll taxes dedicated to paying for social insurance programs, including social security, Medicare taxes and unemployment taxes .
“It is known that undocumented workers contribute to the settlement of large social insurance programs through their tax contributions,” said Carl Davis, research director of the Institute on Taxation and Economic Policy.
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