Politicians have made hay over the last several years claiming that Social Security is approaching “bankruptcy” with too many people receiving retirement and disability benefits for Social Security to have a sustainable future. These claims have been repeatedly shown to be exaggerated. Yet there seems to be no political will to increase funding for Social Security by raising the cap on taxes for highly-compensated workers. Further, a recent report highlighted that over a million employers have failed to pay billions of dollars in legally required Social Security taxes for their workers.
Social Security is funded by taxes under the Federal Insurance Contributions Act (FICA); composed of the old-age, survivors, and disability insurance taxes, also known as Social Security taxes, and the hospital insurance tax, also known as Medicare taxes.
The rise in “Egregious Employment Tax Crimes” and a strategy to deal with it was the subject of a recent report by the Treasury Inspector General. Employers who willfully fail to pay employment taxes to the government, including FICA taxes for Social Security and Medicare, are guilty of a serious crime. In December 2015, 1.4 million employers owed over $45 billion in such unpaid employment taxes, including interest and penalties.
When employers fail to report worker earnings to the IRS and pay their Social Security and Medicare taxes, this negatively impacts disabled workers who file claims for disability benefits only to find that their employer never paid the Social Security and Medicare taxes they owed. Recent budget cuts to IRS enforcement of employment tax noncompliance has led to a decline in penalties imposed on such tax evaders. Although the number of employers who fail to pay taxes for 20 or more quarters, “egregious” non-payers, has more than tripled over a 17 year period, there are fewer than 100 criminal convictions each year. To create a stronger deterrent, the Treasury Inspector General recommended that a strategy be developed to better target egregious employers and expand the number of cases referred for criminal employment tax cases. To accomplish these goals, Congress needs to allocate more funding for enforcement, not less, to the IRS.
Source: Treasury Inspector General for Tax Administration, Office of Inspections and Evaluations, “A More Focused Strategy Is Needed to Effectively Address Egregious Employment Tax Crimes”, March 21, 2017