EXCLUSIVE REPORT:One Firm Filed 33,448 Bad W-2s

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. In the same period, the 295 Social Security numbers that showed up most frequently in the ESF were each used on at least 1,000 W-2s. From the beginning of the Social Security program in 1937 through 2002, employers sent SSA 246 million earnings reports that remained in the ESF. The taxpayers behind them–workers who earned and paid Social Security taxes on about $463 billion in wages–remain anonymous. As long as they remain so, they will be unable to collect the full Social Security benefits to which their wages and taxes entitled them (provided they were legally authorized to live and work in the United States). One company filed 33,448 inaccurate W-2s in one year. But will the government do anything about it? House Judiciary Chairman James Sensenbrenner (R.-Wis.), House Social Security Subcommittee Chairman Jim McCrery (R.-La.) and Rep. Clay Shaw(R.-Fla.), the ranking Republican on the Ways and Means Committee, asked the Government Accountability Office to look at the ESF. This month GAO released a report focusing on 1985-2000 that reveals a telling pattern. Orphaned W-2s do not emerge randomly from American business. “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.” However, most businesses in the industries mentioned are not “egregious” filers of inaccurate W-2s. “Among these industry categories,” says GAO, “a small portion of employers account for a disproportionate number of ESF reports.” 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. “[We] found that employers with a high number of reports in the ESF had a consistent pattern of misidentifying their workers on their annual earnings reports to SSA,” said GAO. “For example, one employer averaged about 13,300 reports placed in the ESF per year over the period we analyzed, ranging from a low of 5,971 to a high of 33,448.” 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.” But, says GAO, “it is important that some level of coordination be reestablished to best leverage SSA’s data on potential unauthorized work activity and DHS staff resources to target the most egregious employers.” Daniel Bertoni, a GAO analyst who worked on the report, told me GAO has the names of the 8,900 companies that filed at least 1,000 inaccurate W-2s between 1985-2000. It also has the name of the company that filed 33,448 in one year. Would GAO give these names to DHS? “I would have to consult with attorneys in terms of access to tax information,” he said. “If it were legal to do so, we would share the information to the fullest extent possible, certainly.” I asked House Judiciary Chairman Sensenbrenner if GAO should give DHS the names. “Yes, I do believe the GAO should provide the compilation of employers sending deficient W-2s to the DHS,” he said. “And I believe that the DHS should establish a procedure for investigating those companies that continue to send bad W-2s year after year.” Should DHS immediately begin to investigate companies that routinely filed large numbers of inaccurate W-2s to see if they are hiring large numbers of illegal aliens? “Absolutely,” said Sensenbrenner. “And the administration should fund the 800 per year additional immigration internal enforcement officers authorized by last year’s 9/11 Commission bill, and signed by the President.” Do Americans have the right to know the name of the company that filed the 33,448 inaccurate W-2s in one year? “Yes,” said Sensenbrenner. “I think the American people should know the name of every company that files more than 100 inaccurate W-2s every year. “Every community in America,” he said, “has begun to recognize the hidden cost of employing illegal aliens, from over-crowded emergency rooms in bankrupt hospitals to schools over crowded with indigent children who require special language teachers that most school districts can’t afford. “Sadly,” he said, “many of these employers are in communities which already have high levels of unemployed U.S. citizens.”