What Happens to FICA Taxes Paid Under Fake Social Security Numbers?
Understanding the Impact on the IRS and Social Security Fund
When individuals mistakenly or intentionally pay FICA taxes under a fake or invalid Social Security Number (SSN), the money ultimately goes into the Social Security Trust Fund, not directly to the individual who paid it. This article explores how this works, the implications, and what happens to the earnings history of such individuals.
The FICA Tax Process
FICA (Federal Insurance Contributions Act) taxes are collected by the Internal Revenue Service (IRS) for Social Security and Medicare. These taxes are typically withheld from the paychecks of employed individuals and sometimes by self-employed workers.
When a person pays FICA taxes with a fake or invalid SSN, the funds are not credited to their personal account. Instead, the money is added to the total contributions of someone else, as long as the SSN belongs to an actual person. The IRS is not aware that a fake SSN has been used, and the system does not detect any discrepancies.
Reporting and Verification
If the individual with a fake or invalid SSN has more than a minimal amount of income, they are required to file a tax return. They typically apply for an Individual Taxpayer Identification Number (ITIN) along with their tax return because they do not have a valid SSN.
For the tax return, the individual will attach a W-2 form showing wage income with the fake or incorrect SSN. This will create an ITIN/SSN mismatch, but the IRS will still accept the tax return. Should the IRS need verification, they can check if the W-2 corresponds to the income earned by the individual filing the return.
Once the tax return is properly filed, the FICA credits are credited against the ITIN of the individual who filed the return. Should the person eventually obtain a valid Social Security Number, their FICA credits can be transferred to their new SSN.
Impact on the Social Security System
Essentially, the FICA taxes paid under a fake or invalid SSN do not affect an individual's personal earnings history or Social Security benefits. The Social Security Administration (SSA) has no record of these individuals, and their earnings are not included in their earnings history.
All FICA tax dollars, regardless of whether the SSN is correct or fake, are deposited into the Social Security Trust Fund. There are no separate individual accounts, and there is no direct correlation between the money paid in and the money taken out for benefits. The allocation is based on a formula set by Congress, which adjustments are made independently of individual contributions.
The SSA does not have an independent account for each individual. Instead, the Trust Fund is the central repository for FICA taxes, which are not allocated to specific individuals. The earnings history of someone with a fake SSN, therefore, will not be considered in benefit calculations.
The Social Security Trust Fund
The Social Security Trust Fund accumulates a surplus of funds, but it is not entirely separate from the general tax revenue. It is more an accounting exercise than a physical fund. For several years, the federal government has borrowed from the Trust Fund for additional revenue, labeling it as 'invested' in the government and earning interest at a government-set rate.
This arrangement means that the surplus in the Trust Fund can be used to cover shortfalls or to fund other government priorities. The Trust Fund is critically important, but its use is subject to approval from Congress, which can be influenced by various political and economic factors.
Conclusion
In summary, when FICA taxes are paid under a fake or invalid SSN, the money joins the broader pool of funds in the Social Security Trust Fund. This process is designed to ensure the stability and solvency of the overall Social Security system, even if individual contributions are not accurately tracked for each person.
For individuals with a fake SSN, their earnings history will not be reflected in the Social Security Administration's records, and their ability to receive benefits will be affected. It is crucial to use a valid SSN to ensure accurate record-keeping and proper assessment of future benefits.
If you are affected by this situation, it is important to consult a tax professional or the appropriate government agency to understand your options and ensure compliance with tax laws.