Social Security Trust Funds' Appropriations

B-261522 Sep 29, 1995 Jump To VIEW DECISION RELATED PAGES GAO CONTACTS Highlights Sec. 401(a)(3) is tied to the amount of wages certified to the Secretary of the Treasury by the Commissioner of Social Security on the basis of the Social Security Administration's (SSA) records of wages established and maintained by SSA in accordance with wage information reports. The Secretary of the Treasury transfers estimated amounts from the general fund of the Treasury to the Trust Funds subject to subsequent adjustments when the estimates are found to have been less than or in excess of actual taxes imposed. Section 201(a)(3) specifies that the Secretary of the Treasury is to determine the amount of taxes imposed "by applying the applicable rates of tax" to the wages reported by employers to IRS. View Decision Matter of: Social Security Trust Funds' Appropriations File: B-261522 Date: September 29, 1995 The amount of funds appropriated to the Social Security trust funds under 42 U.S.C. Sec. 401(a)(3) is tied to the amount of wages certified to the Secretary of the Treasury by the Commissioner of Social Security on the basis of the Social Security Administration's (SSA) records of wages established and maintained by SSA in accordance with wage information reports. The Commissioner, SSA, may consider both individual employee wages, as reported annually by employers to SSA, and wage information reported quarterly by employers to the Internal Revenue Service on Forms 941, in certifying wages to the Secretary of the Treasury. DECISION Background Section 201(a)(3) annually appropriates to the Trust Funds an amount equivalent to the amount of taxes imposed by certain employment tax laws. As a matter of practice, the Secretary of the Treasury transfers estimated amounts from the general fund of the Treasury to the Trust Funds subject to subsequent adjustments when the estimates are found to have been less than or in excess of actual taxes imposed. Section 201(a)(3) specifies that the Secretary of the Treasury is to determine the amount of taxes imposed "by applying the applicable rates of tax" to the wages reported by employers to IRS, "which wages shall be certified by the [Commissioner of SSA] on the basis of the records of wages established and maintained by such [Commissioner] in accordance with such reports" of wages [1] filed by employers. 42 U.S.C. Sec. 401(a)(3). [2] Prior to 1978, Department of Treasury regulations required employers to submit to IRS quarterly reports of employee wages subject to social security taxes on a two-part Form 941, "Employer's Quarterly Federal Tax Return." One part of the form showed, in the aggregate, the wages paid by the employer and the taxes due for all of the employer's employees. In addition to this information, the other part of the form, Form 941A, listed each employee by name, Social Security number, and the amount of wages paid to the employee for that quarter. IRS sent the Forms 941A to SSA which then posted this wage information to individual employee wage records. In response to employers' concerns about the burden imposed by these reports, [3] Congress, in 1976, directed IRS and SSA to implement a combined annual wage reporting (CAWR) system. [4] Pub. L. No. 94-202, sec. 232, 89 Stat. 1135 (1976) (codified at 42 U.S.C. Sec. 432). Under the CAWR system, employers submit quarterly reports to IRS on Form 941. As noted above, the Form 941 includes only aggregate quarterly totals of wages paid and taxes which are due. As a result, employers no longer report quarterly, either to IRS or SSA, wages earned by individual employees. Instead, once a year, employers submit W-2 (listing Social Security wages earned by individual employees) and W-3 (providing an aggregate summary of wages paid and taxes withheld) forms directly to SSA. [5] SSA records the W-2 and W-3 wage information in its individual Social Security wage account records, and forwards the W-2 and W-3 information to IRS. IRS then compares the W-3 wage totals to the Form 941 wage totals. Under the CAWR system, employers submit wage data to IRS and SSA in different form, prepared at different times of the year. Although the total of each employer's quarterly Form 941 reports to IRS should equal the total earnings that an employer annually reports to SSA on its W-2s and W-3s, for a number of reasons, that is not always the case. [6] Employers generally report more wages on their reports to IRS than to SSA. In 1987, for example, significant differences existed between the amount of wages reported by employers to SSA and IRS. Between 1978 and 1987, cumulatively, employers reported over $58 billion less in wages to SSA than to IRS. Social Security: More Must Be Done to Credit Earnings to Individuals' Accounts, GAO/HRD-87-52, Sept.