How Unauthorized Immigrants Help Fund Social Security Benefits

The Social Security Administration receives billions in free money each year from an unexpected source: undocumented immigrants.

This group paid an estimated $25.7 billion in Social Security taxes in 2022, according to a recent analysis by the Institute on Taxation and Economic Policy, a left-leaning tax research group. Because unauthorized workers cannot receive pensions and other Social Security benefits without changing their immigration status, the billions they pour into the program effectively act as a subsidy for American beneficiaries.

President-elect Donald J. Trump has vowed to implement the nation’s largest mass deportation program to date and limit legal immigration pathways. It is hard to predict whether the new administration will be able to follow through on its most aggressive promises, which include sending home the estimated 11 million undocumented workers currently in the United States.

But if the White House does, economists predict major damage to the economy — and it could cost Social Security roughly $20 billion in cash flow annually, according to actuaries at the Social Security Administration, which sends benefits to 68 million Americans each month, a total of 1 .5 trillion dollars last year.

Social Security has been facing funding shortfalls for years, partly due to demographic changes. Falling birth rates mean fewer people are paying into the program, thousands of baby boomers are retiring every day, and retirees are collecting benefits for longer periods.

“America’s demographic reality is a growing challenge to funding programs like Social Security,” said Shai Akabas, executive director of the economic policy program at the nonprofit Bipartisan Policy Center. “Net immigration into the country is one factor that has positively pushed that trend and helped fill the gap left by an aging workforce.”

The endowment that pays Social Security retiree benefits is expected to dry up in 2033, when tax revenues will be sufficient to pay 79 percent of planned benefits. That means consumer checks would be cut by 21 percent if Congress did nothing. (Legislators are expected to do something, although the best approach to support the program is being debated.)

Major shifts in immigration policy could have knock-on effects on Social Security. The net immigration rate was projected to drive population growth — and explain all population increases starting in 2040 because U.S. fertility rates are so low, according to a 2024 Congressional Budget Office report.

“If the immigrant workforce shrinks, it will likely worsen Social Security’s financial picture in the near term and require more significant reforms elsewhere,” said Mr. Akabas of the Bipartisan Policy Center, which has recently studied the issue. “However, the broader issues of immigration policy and border security require careful consideration that goes beyond their impact on the Social Security agenda.”

To get a sense of how different levels of immigration—both legal and otherwise—could change the program’s finances over the long term, we can look at the Social Security Administration’s most recent annual report from the trustees, which projects the financial health of the combined pension and disability trust fund over a 75-year period beginning as of 2024. (The Social Security shortfall is often measured as a percentage of total wages covered by the program, or of all wages subject to the payroll tax, the program’s dedicated funding source.)

The commissioner’s best estimate assumes a population of 1.24 million net immigrants each year. At that rate, the program needs an additional 3.5 percent of its taxable salary to become fully solvent. But if annual net immigration falls to 829,000 (a low estimate), the program’s long-term funding shortfall would worsen by about 10 percent (to 3.9 percent of taxable wages from 3.5 percent).

But if net immigrants rose to nearly 1.7 million a year, the funding gap would improve by 10 percent (to 3.1 percent of wages).

In other words, for every 100,000 net immigrants each year, the funding gap is reduced by 0.09 percent of taxable wages.

“Most of these individuals are early in their careers and start contributing to Social Security right away, even though they won’t be claiming benefits for years into the future, if at all,” the Bipartisan Policy Center said in a report. “It creates a net positive effect on the social security system.”

Undocumented workers must still pay taxes on any income earned in the United States, and it is estimated that at least half of them file federal tax returns. But even if they contributed payroll taxes, they are not allowed to collect any Social Security benefits and many other credits, including the Earned Income Tax Credit, which requires all taxpayers and their dependents to have valid Social Security numbers.

Employers are generally required to verify the identity of potential workers and their eligibility to work using the I-9 form and collect documentation as evidence. Because people generally need a Social Security number to get a job, undocumented workers who receive a salary — instead of being paid, for example, in cash — may use fictitious Social Security numbers, another person’s number, or a number that was once valid when they had the status of authorization to work.

But when they file their tax returns, they use a different number: an Individual Taxpayer Identification Number, also nine digits long and known as an ITIN. The IRS created them in 1996 to allow people who don’t qualify or don’t have Social Security numbers to legally file tax returns and comply with tax laws — say, a student visa holder or certain spouses of people on work visas.

While undocumented workers may fear that their ITIN could be used for deportation, there are safeguards in place that prevent the IRS from sharing taxpayer information with other federal agencies. Congress should take legislative action to change that.

Undocumented workers often file tax returns to demonstrate good moral character, which could later help them in any immigration case, whether it’s deportation or putting them on a path to citizenship.

“They want to integrate into American society, and this is an important way to do that,” said Sarah Lora, associate clinical professor at Lewis & Clark Law School and director of the Low-Income Taxpayer Clinic. “There’s almost an awe of the tax system,” she said, referring to the attitudes of the undocumented taxpayers she helped with their returns.

The Institute on Taxation and Economic Policy estimates that undocumented workers paid a total of $96.7 billion in federal, state, and local taxes in 2022, a third of which went to payroll taxes that are intended to pay for social security programs, including Social Security, Medicare and unemployment taxes.

“It is well known that undeclared workers contribute to the solvency of major social security programs through their tax contributions,” said Carl Davis, director of research at the Institute on Taxation and Economic Policy.