Every year the Social Security Administration consigns up to nine million hopelessly inaccurate W-2 reports to a Social Security limbo.
It is called the Earnings Suspense File (ESF), and it is the final resting place of W-2s that cannot be matched to a known taxpayer. Some, for example, have no Social Security Number. Others have a Social Security number never issued by the government. Between 1985-2000, 3.5 million of the W-2s landing in the ESF file had a Social Security Number that was used for multiple workers by the same employer in the same year.
“Forty-three percent of employers associated with earnings reports in the ESF are from only five of 83 broad industry categories,” GAO reported. These include “eating and drinking establishments, construction and special trades, agricultural production-crops, business service organizations, and health service organizations.”
At least some of the tendency in these industries to file inaccurate W-2s is driven by the hiring of illegal aliens. Citing a report by SSA’s inspector general, GAO says, “SSA’s experience is that employers who rely on a workforce consisting of relatively unskilled and migrant workers are the major source of suspended earnings.” Citing its own report of June 19, 2002, “Immigration Enforcement: Challenges to Implementing the INS Interior Enforcement Strategy,” GAO says, “hundreds of thousands of unauthorized workers have used fraudulent documents to circumvent processes designed to prevent their hire. Such documents would likely be associated with erroneous earnings reports later filed by employers and recorded in the ESF.”
The GAO reports that there were “4.3 million employers with earnings reports in the ESF for the period examined.” They filed a total of 84.6 million records that ended up in the ESF during that time. But only 8,900 employers filed 1,000 or more W-2s that ended up there, and those 8,900 accounted for more than 30% of ESF reports.
Then there is the firm that filed 33,448 inaccurate W-2s in one year.
When SSA cannot match a W-2 to a worker it writes to the address on the W-2. “If the worker does not respond,” says GAO, “SSA then sends a letter to the employer that filed the report soliciting assistance in resolving the problem.”
You would think employers who routinely file large numbers of these W-2s would figure out they were doing something wrong.
You also would think the Department of Homeland Security, which enforces the immigration law, might also suspect they were doing something wrong and want to investigate exactly what it is.
“Employers engaging in a pattern or practice of knowingly hiring or continuing to employ unauthorized workers can be subject to fines and imprisonment,” says GAO.
Citing competing demands for DHS resources in a post-9/11 world, GAO says, “At present, it is unlikely that DHS will take enforcement action against employers and workers who submit inaccurate information to SSA to conceal unauthorized work activity.”