The Social Security Administration receives billions in free money every 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 collect pension and other Social Security benefits without a change in their immigration status, the billions they pour into the program essentially act as a subsidy to U.S. beneficiaries.
President-elect Donald J. Trump has pledged to implement the nation's largest mass deportation program yet and limit legal immigration routes. It is difficult to predict whether the new administration will be able to deliver on its most aggressive promises, including sending home the estimated 11 million undocumented workers currently in the United States.
But if the White House follows through, economists predict a major drag on the economy — and it could cost Social Security about $20 billion in cash flow annually, according to actuaries at the Social Security Administration, which sends benefits to 68 million Americans every month . , totaling $1.5 trillion last year.
Social security has been facing a funding shortage for years, partly as a result of demographic shifts. Declining birth rates mean fewer people are paying into the program, thousands of baby boomers are retiring every day, and retirees are receiving benefits for longer periods.
“America's demographic realities pose an increasing 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 countered this trend and helped fill the gap left by the aging workforce.”
The trust fund that pays Social Security retirement benefits is expected to dry up in 2033, when tax revenues will be enough to pay 79 percent of scheduled benefits. That means recipients' checks would be cut by 21 percent if Congress did nothing. (Lawmakers are expected to act, though there is ongoing debate over the best approach to support the program.)
Major shifts in immigration policy could have a ripple effect on social security. According to a 2024 report from the Congressional Budget Office, the net immigration rate would drive population growth — and be responsible for all population growth starting in 2040 because U.S. fertility rates are so low.
“If the immigrant labor force declines, it will likely worsen Social Security's financial picture in the short term and will require more significant reforms elsewhere,” said Mr. Akabas of the Bipartisan Policy Center, which recently studied the issue. “That said, the broader issues of immigration policy and border security require careful consideration beyond their impact on the Social Security program.”
To get an idea of how different levels of immigration – both legal and otherwise – could change the program's finances in the long run, we can look at the Social Security Administration's latest annual trustees report, which assesses the financial health of the combined trust fund predicts. retirement and disability benefits over a period of 75 years beginning in 2024. (The Social Security deficit is often measured as a percentage of total payroll covered by the program, or of all wages subject to payroll taxes, the specific funding source. )
The trustees' best estimate assumes a population of 1.24 million net immigrants per year. At that rate, the program will need an additional 3.5 percent of its taxable wages to become fully solvent. But if annual net immigration fell to 829,000 (the low estimate), the program's long-term funding gap would worsen by about 10 percent (from 3.5 percent to 3.9 percent of taxable payrolls).
But if net immigrant numbers rose to nearly 1.7 million per year, the financing gap would improve by 10 percent (to 3.1 percent of the payroll).
In other words: for every 100,000 net immigrants per year, the financing gap increases by 0.09 percent of the taxable wage bill.
“Most of these individuals are earlier in their careers and immediately begin contributing to Social Security, even though they may not claim benefits for years to come, if ever,” according to a report from the Bipartisan Policy Center. “This creates a net positive effect on the social security system.”
Undocumented workers still have to pay taxes on any income they earn in the United States, and it is estimated that at least half of them file federal tax returns. But even if they have contributed to payroll taxes, they are not allowed to collect Social Security benefits and many other credits, including the income tax credit, which requires all tax filers and their dependents to have valid Social Security numbers.
Employers are generally required to verify the identity of potential employees and their eligibility to work using the I-9 form, and to collect documentation as evidence. Because people generally need a Social Security number to get a job, undocumented workers who receive paychecks—instead of being paid in cash, for example—may use made-up Social Security numbers, someone else's number, or a number that was once was valid when they worked. had work permit status.
But when they file their taxes, they use a different number: the Individual Taxpayer Identification Number, also nine digits and known as ITINs. The Internal Revenue Service created them in 1996 to allow people who are ineligible or who do not have a Social Security number to legally file tax returns and comply with tax laws – for example, a student visa holder or certain spouses of people with a work visa.
Although undocumented workers may fear that obtaining an ITIN could be used to deport them, there are protections in place that prevent the IRS from sharing taxpayer information with other federal agencies. To change this, Congress would have to take legislative action.
Undocumented workers often file tax returns to demonstrate good moral character, which could later help them with any immigration cases, whether related to deportation or putting them on the path to citizenship.
“They want to integrate into American society, and this is an important way to do that,” said Sarah Lora, associate professor at Lewis & Clark Law School and director of the Clinic for Low-Income Taxpayers. “There's almost a reverence for the tax system,” she said, referring to the attitude of undocumented taxpayers she has 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 pay for social insurance programs, including the social security. Medicare and unemployment taxes.
“It is well known that undocumented workers contribute to the solvency of major social insurance programs through their tax contributions,” said Carl Davis, research director at the Institute on Taxation and Economic Policy.
