Social Security

A 1987 GAO report noted that employers had reported $58 billion more in social security wages to the Internal Revenue Service (IRS) than to the Social Security Administration (SSA). As a result, millions of workers may be shortchanged when their social security benefits are calculated because they were never credited for wages they had earned and paid social security taxes on. In addition, billions of dollars provisionally credited by the Treasury Department to the social security trust fund were not supported by SSA's records. Considerable progress has been made in addressing the differences between wages reported to SSA and IRS, although the reconciliation process would have been more successful had IRS met all of its commitments to share wage data. Its delays in setting up a penalty program caused IRS to overrun a statute of limitations on applying such penalties. IRS did not effectively institute provisions to help prevent known causes of reporting differences and arbitrarily limited the number of referred SSA cases that it worked. In addition, SSA needs to do more to prevent employer reporting problems. Also unresolved is the trust fund problem arising from differences in SSA and IRS records. After reconciliation, more than $65 billion in wage differences remain for 1978-86 cases. Thus, about $9 billion credited to the trust funds--social security taxes on the unreconciled wages--are not supported by SSA's earnings records. GAO concludes that funding of the trust funds should be based on the amount of social security taxes collected.

GAO found that: (1) after the implementation of a formal reconciliation process, SSA and IRS have made substantial progress in reducing the discrepancies between the wages reported to each agency by employers; (2) SSA cannot determine the actual amount of new wage data because it only broadly monitors the nature of employer responses; (3) IRS did not meet all of its MOU commitments, which reduced the potential success of the reconciliation process; (4) employers file inaccurate SSA wage reports because they often do not understand regulations on wages, reporting requirements, and the relationships among the various wage reports they must file; (5) further improvements in the reconciliation process and the prevention of employer wage-reporting errors could further reduce reported discrepancies; (6) the Treasury Department has credited and continues to credit billions of dollars to the social security trust funds that are not supported by SSA wage reports; and (7) a collection-based funding system for the social security trust funds would be consistent with the historic funding of the programs and would more accurately capture monies due the trust funds.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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