How Unauthorized Immigrants Help Finance 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 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 to 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 carry out the nation’s largest mass deportation program to date, and restrict legal pathways to immigration. It’s hard to predict whether the incoming administration will be able to follow through with its most aggressive promises, among them sending home the estimated 11 million undocumented workers currently in the United States.

But if the White House does follow through, economists project a broad drag on 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, totaling $1.5 trillion last year.

Social Security has faced a financing shortfall for years, partly because of demographic shifts. Falling birthrates mean fewer people are paying into the program, thousands of baby boomers are retiring daily, and retirees are collecting benefits for longer periods.

“America’s demographic realities are increasingly challenging for financing programs like Social Security,” said Shai Akabas, executive director of the economic policy program at the Bipartisan Policy Center, a nonprofit. “Net immigration into the country is one factor that has positively pushed against that trend and helped fill the gap left by an aging work force.”

The trust fund that pays Social Security’s retiree benefits is expected to run dry in 2033, when tax revenue will be enough to pay 79 percent of scheduled benefits. That means beneficiaries’ checks would be reduced by 21 percent if Congress did nothing. (Legislators are expected to do something, though there is a debate about the best approach to shore up the program.)

Major shifts to immigration policy could have ripple effects on Social Security. The net immigration rate was projected to drive population growth — and account for all population increases beginning in 2040 because American fertility rates are so low, according to a 2024 report from the Congressional Budget Office.

“If the immigrant work force declines, that 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 recently studied the issue. “That said, the broader questions of immigration policy and border security require careful thought that goes beyond their impact on the Social Security program.”

To get a sense of how different levels of immigration — both lawful and otherwise — can alter the program’s finances over the long term, we can look at the Social Security Administration’s latest annual trustees report, which forecasts the financial health of the combined trust fund for retiree and disability benefits over a 75-year period starting in 2024. (Social Security’s shortfall is often measured as a percentage of the total payroll covered by the program, or all the wages subject to payroll taxes, the program’s dedicated funding source.)

The trustees’ 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 payroll to become fully solvent. But if annual net immigration fell to 829,000 (its low estimate), the program’s long-term financing shortfall would worsen by about 10 percent (to 3.9 percent of taxable payroll from 3.5 percent.).

But if net immigrants rose to nearly 1.7 million annually, the financing shortfall would improve by 10 percent (to 3.1 percent of payroll.)

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

“Most of these individuals are earlier in their careers and begin contributing to Social Security immediately, even though they will not claim benefits for years into the future, if ever,” a Bipartisan Policy Center report said. “This creates a net positive effect on the Social Security system.”

Undocumented workers are still required to pay taxes on any income earned in the United States, and it’s estimated that at least half of them file federal tax returns. But even if they have contributed to payroll taxes, they are not permitted to collect any Social Security benefits and many other credits, including the earned-income tax credit, which requires that all tax filers and their dependents have valid Social Security numbers.

Employers are generally required to verify prospective workers’ identities and their eligibility to work using the I-9 form, and to collect documentation as evidence. Since 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, another person’s number or a number that was once valid when they had work authorization status.

But when they file their tax returns, they use another number: the individual taxpayer identification number, also nine digits and known as ITINs. The Internal Revenue Service created them in 1996 to enable people who are ineligible or who do not have Social Security numbers to legally file tax returns and comply with tax laws — say, a student visa holder or certain spouses of people with employment visas.

Though undocumented workers may fear that their having obtained an ITIN could be used to deport them, there are protections that prevent the I.R.S. from sharing taxpayer information with other federal agencies. Congress would need to take legislative action for this to change.

Undocumented workers often file tax returns to show good moral character, which might later help them in any immigration cases, whether that’s related to deportation or putting them on the road to citizenship.

“They want to integrate into American society, and this is an important way to do that,” said Sarah Lora, an associate clinical professor at Lewis & Clark Law School and the director of its low-income-taxpayer clinic. “There is almost a reverence for the tax system,” she said, referring to the attitudes of undocumented taxpayers she has assisted with 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 toward the payroll taxes that are dedicated to paying for social insurance programs, including Social Security, Medicare and unemployment taxes.

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