This report discusses a longstanding operating problem of the Social Security Administration and the Internal Revenue Service: reconciling the differences between them in employer reports of employee earnings made separately to the two agencies. To ensure the timely reconciliation of differences between the two agencies in employer reported earnings, the report (1) includes recommendations to the Secretaries of the Treasury and Health and Human Services and (2) suggests several matters that the Congress should consider.

We made our review according to the Budget and Accounting Act, 1921 (31 U.S.C. 712), and the Accounting and Auditing Act, 1950 (31 U.S.C. 3511).

We are sending copies of this report to the Secretaries of the Treasury and Health and
Human Services and the chairmen of congressional committees and subcommittees with
oversight responsibility for the Social Security Administration and the Internal Revenue
Service. Copies are also being sent to the Commissioners of Social Security and Internal
Revenue and the Director of the Office of Management and Budget.

Executive Summary

Purpose

Individuals' Social Security benefits and the amount of tax money the Social Security trust funds are entitled to are based on the earnings recorded in individuals' Social Security accounts. If the Social Security Administration (SSA) fails to record all or part of an individual's annual earnings, the Social Security benefits it calculates for such individuals could be too low and the trust funds would not be entitled to all the tax revenue.

For this report, GAO Sought to determine (1) the effectiveness of the process for identifying and resolving instances where employers may not have reported all or part of employees' earnings and (2) the effect any uncredited earnings might have on individuals' Social Security benefits and the trust funds.

Background

Results in Brief

Employers report employees' earnings to SSA and the Internal Revenue Service (IRS) at different times and for different purposes. IRS compares the annual total employers reported to SSA with the total of the quarterly earnings employers reported to IRS. Subsequently, IRS tells SSA which employers may not have reported any or all earnings to SSA. Contacts with the employers are frequently necessary to determine whether all earnings were reported. If SSA finds that it has not recorded some employees' earnings, it corrects those accounts.

Although the amount of tax money SSA is entitled to is based on annual earnings recorded in individuals' accounts, SSA receives tax revenues based on quarterly earnings amounts employers report to IRS. SSA considers these earnings amounts to be "interim estimates" of what it will eventually record.

Slow progress by SSA and IRS in reconciling differences in employee earnings has resulted in (1) Social Security beneficiaries receiving less in benefits than they were entitled to and (2) the Social Security trust funds' retaining $7.7 billion in tax money, as of March 1987, related to earnings not recorded in Social Security's records.

From 1978 through 1984 (data after 1984 are preliminary), SSA recorded about $58.5 billion less in employees' earnings than IRS. Although this represents only about 0.8 of 1 percent of all earnings that SSA recorded during this period and seems relatively small, the impact on those affected by uncredited earnings can be significant. A nonprojectable sample of current beneficiaries reviewed by GAO showed that affected