Statement of James
B. Lockhart
Deputy Commissioner
for Social Security
Testimony before
the House Committee on Ways and Means Subcommittee on
Social Security
Subcommittee on
Oversight Hearing on Individual
Taxpayer Identification Numbers (ITINs), Social Security Numbers (SSNs),
Wage Reporting, and the Suspense File
March
10, 2004
Mr. Chairman and Members of the Committee:
Thank
you for asking me to be here today to discuss the steps SSA has taken to
improve and strengthen our wage reporting and enumeration processes, as
well as our efforts to reduce the size of the suspense file.� We have taken
positive action in all these areas. Enumeration, which is the issuance
of Social Security numbers (SSNs), and wage reporting are core Agency functions.� Commissioner
Barnhart's Five Year Strategic Plan has nine strategic objectives, of which
two are:� "Strengthen the integrity of the Social Security number" and
"Increase the accuracy of the earnings record."
History of the Social
Security Number and Card
First,
I would like to describe the history and the original purpose of the SSN
and the Social Security card.� Following the enactment of the Social Security
Act in 1935, the SSN was developed to keep track of the earnings of people
who worked in jobs covered under the new Social Security program.� The
rules regarding the assignment of SSNs to workers were first published
in Treasury regulations in 1936.�
The Social
Security card reflects the number that has been assigned to each individual
who applies for an SSN. �The card, when shown to an employer, assists the
employer in assuring that earnings are reported properly.� Public information
documents issued early in the administration of the program advised workers
to share their SSNs only with their employers.� Initially, the only purpose
of the SSN was to assure that SSA kept accurate records of earnings under
Social Security so that we could pay benefits based on those earnings.
Use of the SSN Expands Over Time
Although
the purpose of the SSN was narrowly drawn from the outset of the program,
use of the SSN as a convenient means of identifying people in large systems
of records has increased over the years.� In 1943, Executive Order 9397
required Federal agencies to use the SSN in any new record systems for
the purpose of identifying individuals.� This use proved to be an early
reflection of what has become an enduring trend to expand the use of the
SSN.� The simplicity and efficiency of using a unique number that most
people already possessed encouraged widespread use of the SSN by both government
agencies and private enterprises, especially as they adapted their record-keeping
and business systems to automated data processing.�
In 1961,
the Federal Civil Service Commission established a numerical identification
system for all Federal employees using the SSN as the identification number.� The
next year, the Internal Revenue Service (IRS) decided to begin using the
SSN as its taxpayer identification number (TIN) for individuals.� In 1967,
the Defense Department adopted the SSN as the service number for military
personnel.� At the same time, use of the SSN for computer and other accounting
systems spread throughout State and local governments, to banks, credit
bureaus, hospitals, educational institutions and other parts of the private
sector.� During this time, there were no legislative restrictions on the
use of the SSN.
Statutory Provision Relating to the Public
Sector
The first
explicit statutory authority to issue SSNs was not enacted until 1972,
when Congress required that SSA assign SSNs to all noncitizens authorized
to work in this country and take affirmative steps to assign SSNs to children
and anyone receiving or applying for a Federally funded benefit.��� Subsequent
Congresses have enacted legislation which requires an SSN in order to receive
Supplemental Security Income (SSI), Temporary Assistance for Needy Families
(TANF), Medicaid, and food stamps.� Additional legislation authorized States
to use the SSN in the administration of tax, general public assistance,
driver's license, or motor vehicle registration laws within its jurisdiction.
The Privacy
Act was enacted in 1974 partly in response to concern about the widespread
use of the SSN.� It provided that, except when required by Federal statute
or regulation adopted prior to January 1975, no Federal, State, or government
agency could withhold benefits from a person simply because the person
refused to furnish his or her SSN.
In the
1980s and 1990s, new legislation provided for additional uses of the SSN,
including employment eligibility verification, military draft registration,
and for operators of stores that redeem food stamps.� Legislation was also
enacted that required taxpayers to provide the SSN for dependents.
A major
expansion of SSN usage was provided in welfare reform legislation enacted
in 1996.� Under welfare reform, to improve child support enforcement, the
SSN was required to be recorded in a broad array of records, including
applications for professional licenses, marriage licenses, divorce decrees,
support orders, and paternity determinations.�
Use of the SSN by the Private Sector
Currently,
there are no restrictions in Federal law on the use of the SSN by the private
sector.� Businesses may ask for a customer's SSN for such things as renting
a video, applying for credit cards, obtaining medical services, and applying
for public utilities.� Customers may refuse to provide the number, however,
the business may, in turn, decline to furnish the product or service.� Continuing
advances in computer technology, the ready availability of computerized
data, and rapidly increasing use of the internet have encouraged the growth
of information brokers who amass and sell large volumes of personal information,
including SSNs collected by businesses. �When possible, information brokers
store and retrieve information about an individual by that individual's
SSN because it is more likely than any other identifier to maintain unique
records for each specific individual.
Contemporary Challenges Regarding the SSN
As you
can see, use of the SSN is widespread in our society.� This usage is the
product of numerous decisions made over the years. The cumulative effect
is to make the SSN an important element in establishing and maintaining
an individual's identity in various record systems, and the ability of
individuals to function in our society and economy.� As a result, the SSN
is prized by criminals who are intent on stealing another person's identity,
or creating a false identity.�
Accomplished
identity thieves use a variety of methods to gain access to personal data.� We
at the Social Security Administration want to do whatever we can to help
prevent identity theft and assist in the apprehension and conviction of
those who engage in this crime.
Social
Security Cards Issuance
The vast
majority of new cards are issued to U.S. citizens or to
non-citizens who have been permanently authorized to work in the U.S. These cards show
only the name and SSN of the individual. �In 2003 we issued approximately
5.4 million new cards.� Of these 4.2 million were issued to U.S. citizens, nearly
90 percent of these were issued through our Enumeration at Birth process,
which successfully expedites SSN issuance for newborns and facilitates
their parents' tax return filings.� In addition we issued almost 400,000
new cards to non citizens who were lawfully admitted for permanent residence.�
�Non-citizens
who are not authorized to work, or who are only temporarily authorized
to work will receive a card bearing one of two legends. �We issued approximately
800,000 of these cards.
We have
been issuing cards with the legend "Valid for Work Only With INS
Authorization" since 1992 in cases where non-citizens come to the U.S. with temporary
authorization to work. In 2003 about 771,000 of these cards were issued.
We started
issuing cards with the legend "Not Valid for Employment" in 1982 to inform
employers that the individual is not eligible for work. ��In 2003 we issued
less than 20,000 of these cards. �Due to changes we have made, we have
had a significant decline in the number of "non-work" SSNs we issue, from
a peak level of over half a million in the mid-90s.
Strengthening
the Enumeration Process
In connection with this effort, I'd like to discuss what SSA
has done to strengthen the processes associated with assigning Social Security
Numbers.� The terrorist attacks of September
11, 2001 reinforced
the need for a concerted long-term effort to address SSN misuse and identity
theft.� SSA formed a high-level response team meeting regularly to develop
recommendations on enumeration policy and procedure. �Implementation of
many of the team's recommendations has strengthened our capability of preventing
those with criminal intent from obtaining and using SSNs and SSN cards.
For example, effective October 27, 2003, SSA does not assign
an SSN to noncitizens who are not authorized to work when the only reason
for needing a number is to comply with a state statute requiring an SSN
for the issuance of a driver's license.
SSA changed procedures in February 2002 for verifying a person's
SSN so that additional private information on SSA's records (NUMIDENT)
would not be included on the document that verifies the SSN.
Beginning June 1, 2002, SSA began verifying birth records
with the issuing agency for all U.S. born SSN applicants age one or older.� (Under
former rules, we only verified birth records for applicants age 18 and
older.)
SSA no longer assigns SSNs to non-citizens who are authorized
to work without first verifying the authenticity of their immigration documents
with United States Citizenship and Immigration Services (USCIS).
As of mid-December, 2001, new audit trails were put in place
for SSN applications, making the quality checks used under SSA's SSN verification
processes consistent and more robust.
Our online SSN verification system (SSNVS) pilot for employers
has expanded from the original 9 employers to 85.� This system holds great
promise, but, we are proceeding carefully to ensure that the system is
secure as well as user friendly.
We have been successful
in establishing a process, administered jointly by SSA and the Department
of State, which allows SSA to assign SSNs and issue SSN cards to non-citizens
who choose to apply for an SSN as part of the process that allows them
to enter the country as permanent residents.� (Thus, this process is not
available to students or tourists.)� Under this process, known as Enumeration
at Entry (EAE), the data required to assign an SSN, including verification
of the individual's immigration and work authorization status, are provided
to SSA by the Department of State (DOS) and the Department of Homeland
Security, (DHS), (formerly INS).�� SSA electronically receives the information needed to enumerate
the individual from the INS with no need for further document review and
verification.
SSA has reserved a block
of Social Security numbers specifically for assignment under the EAE process.� Therefore,
all non-citizens choosing to use this process to request their SSN receive
a number from this special series.� All US consular sites now have the software
necessary to allow non-citizens applying for permanent residence in the U.S. to participate in EAE.
We also continue to look for other ways to make the enumeration
process more efficient and secure.� A pilot Social Security Card Center
opened in Brooklyn, New York in November, 2002.� The Center represents
a joint effort of SSA, SSA's Office of the Inspector General and the Immigration
and Naturalization Service (now USCIS).� The collaboration of the parties
is intended to strengthen SSN application procedures, ensuring that applications
are processed with a high degree of integrity, efficiency and expertise. �
As of February 2004, the Center has successfully served over
170,000 visitors.� While we are waiting to see the final results from the
review of the pilot, initial feedback has been extremely positive.� After
considering the final results, we hope to open at least one additional Card Center this year.� We will move slowly and
judiciously in deciding when and where to open it.�
The
Wage Reporting Process
I would now like to discuss the process
of reporting and crediting wages.� SSA's role in the wage reporting process
ensuring that all workers receive credit for the work on which they and
their employers paid FICA taxes is one of SSA's core business processes,
and it ensures that a worker and his or her family receive benefits that
accurately reflect �all of the worker's earnings.
Accurate earnings information is important
because a worker's earnings record is the basis
for computing retirement, survivors, and disability benefits. If
a worker's earnings are not properly recorded, he or she may not qualify
for benefits, or the benefit amount may be too low or too high.�
Employers report wages
to the Social Security Administration on Forms W-2.� Each year, SSA processes
about 240 million W-2s from about 6.5 million employers,
that are sent to the Social Security Administration (SSA) either
on electronic media or on paper.� These W-2s represent the wages earned
by about 145 million workers annually.� While some employers continue to
send paper reports, we encourage electronic filing.� We work with the employer
community to educate them on the advantages of this method, and its use
continues to grow as technology improves.� I am pleased to report in 2003
over 53% of W-2s were filed electronically up from less than 10% in 1999.
When a person files for
benefits, the SSA employee reviews the earnings record with the worker
and assists the worker to establish any earnings that are not shown or
are not correctly posted. However, because it may be difficult to
accurately recall past earnings or to obtain evidence of them, it is better
to establish and maintain accurate records at the time the wages are paid.��
As you know, SSA mails
Social Security Statements to all workers over age 25 each year.� Among
other benefit information on the Statement, it shows the worker's annual
earnings for past years.� This gives the worker the opportunity to verify
the earnings on SSA's records and to determine if any earnings are missing.� Corrections
can be made on a more timely basis by reviewing the Statement, instead
of waiting until the point that an actual claim is filed.
In addition to using earnings
for Social Security benefit purposes, SSA sends the same data to the IRS,
which has the responsibility of collecting the income taxes due.�
The earnings suspense file is an electronic
holding file for W-2s that cannot be matched to the earnings records of
individual workers.� This happens when the name and SSN on the W-2s do
not match SSA's records.� The suspense file is maintained so that if SSA
later obtains the correct name and/or SSN for a worker, the wages can then
be credited to that person's record.� As I mentioned, the suspense file
contains about 244 million W-2s (data through TY 2001-the most recent
year for which complete data is available).�
In order for wages to be credited
to the correct worker, the worker's name and SSN on the W-2 must match
the name and SSN recorded on the "Numident" file - the master record of
SSNs issued.� We receive 240 million W-2 reports annually.� About 10 percent
of the W-2s received by SSA have invalid name/SSN combinations when they
first come to us.� �In our initial processing, the computer system manipulates
the name and SSN to try to find a match on our records.� A number of separate
processes address discrepancies between the name reported on the W-2 and
the name on SSA records.� For example, compound surnames sometimes cause
a "no match".� Other processes assume that the reported name is correct
but that some mistake has been made with the SSN.� The reported SSN is
adjusted for a variety of prescribed common mistakes, such as transposing
digits, in an effort to obtain a match.� For TY 2001, we were� able to
post 6 percent of� all W-2s received to the correct SSN through these computer
routines-i.e., 60 percent of the 10 percent of all W-2s received with invalid
name/SSN combinations.� The balance, 4 percent of W-2s received for TY
2001, remains in the suspense file.� This represents approximately 9.6
million W-2s representing $56.1 billion in wages and $7.0 billion in social
security payroll taxes.
Subsequent processing reduces this
percentage further.� W-2s are removed from the suspense file on an ongoing
basis and reinstated to the correct worker's record.� These reinstatements
can occur for various reasons for example, because the worker raises a
question about his or her earnings when they receive their Social Security
Statement, or during the benefit application process, or as a result of
internal processing where SSA can subsequently match the W-2 to the correct
worker. �As a result of this subsequent processing, over time, there is
a decline in the percentage of W-2s for a given year or period of years
that remain in the suspense file.� For example, for tax years beginning
in 1978, when SSA began processing W-2s, through TY 2001, about 2 percent
of all W-2s remain in the suspense file.
Individual Tax Identification Numbers
Some W-2s received by SSA have an
Individual Tax Identification Number (ITIN) in the SSN field on the form,
instead of a valid SSN.� An ITIN is a 9-digit number issued by IRS to non-citizens
who need tax identification numbers for tax purposes and who otherwise
do not meet the requirements for being assigned an SSN.� When employers show an ITIN on the W-2, this results in the W-2 being
posted to the suspense file because an ITIN is not a valid SSN.
IRS began assigning ITINs effective July
1,1996.� Subject to a 1997 Memorandum of Understanding between SSA
and IRS, IRS agreed that ITINs will be nine digits beginning with the number
"9" and initially will have either "7" or "8" in the 4th position.
A one-time review of our records
indicated that for the period 1996 (the first year ITINs were issued) through
2002, approximately 342,000 W-2s have been reported under ITINs and remain
in the suspense file.� This represents less than two-tenths of 1 percent
of the W-2s in the suspense file since its beginning through the time of
the review.�
Removing W-2
Items from the Suspense File
SSA is committed to significantly
reducing the suspense file's rate of growth as well as to reducing its
current size.� This commitment reflects SSA's concern that, when earnings
are not posted to an individual's earnings record, the individual will
not receive proper credit, a concern that I discussed earlier.�� As part
of this effort, SSA employees carry out a number of activities to assure
that W-2s are credited to the correct individuals' earnings record.
One activity that SSA has
instituted is to notify employers with a significant number of mismatches
of all name and SSN errors on the W-2s that they reported.� SSA also requests
corrected W-2s, so that employers will avoid the same mistakes in future
years.� These letters are often called employer "no-match" letters, and
in 2003, SSA sent 126,250 of these letters to employers with substantial
numbers of mismatched name/SSN combinations.��
We also notify employees
that we could not process their W-2s due to errors on the W-2 and ask them
to work with us to resolve the problem.� These notices are often referred
to as employee "no-match" letters. �In 2003, we sent 9.5 million such letters
to employees, of which 1.9 million went to their employers because we did
not have a good address for the employee.
Last year, for TY 2002,
the letters were modified to make them easier to understand and to emphasize
the cautionary language that an employer should not take adverse action
against the employee.� This version of the notice was used again for the
most recent year.
For those who did not respond
to the employee no-match letters, SSA compares the name and address with
the name and address on the IRS' master file.� If there is a match, the
person's wages can be credited on the basis of the SSN reported to the
IRS on the person's tax form.
On a cyclical basis, SSA runs an electronic
operation to review all the W-2s in the suspense file in light of improvements
that have been made to the electronic processes I mentioned before. This
operation, known as "SWEEP," is run every year for the suspense file back
to 1978 and every two years for the entire suspense file (back to 1937).� While
the SWEEP program is most successful in crediting earnings from recent
years, it does identify earnings that can be associated with a correct
SSN for all years. �For the 2002 processing year, the SWEEP operation removed
468,000 W-2s from the suspense file and properly reinstated them to correct
individual's records.� This operation included reinstatements for all past
years back to 1937.
Beginning in April 2003,
SSA implemented a new process that will electronically find millions of
additional matches of W-2s in the suspense file and post those W-2s to
the earnings records of the correct individuals.�� While the previous processes
to match the name and SSN used only the Numident, the new process also
uses the worker's detailed earnings record (that includes employer information)
and the master beneficiary record, for those who are receiving benefits,
to identify the missing earnings with the correct worker.� This new process
also employs new techniques with earnings record patterns to match the
earnings to the correct individual.
As a result of this new process,
in FY 2003, 2.4 million W-2s were removed from the suspense file and posted
to the correct earnings records.� It is estimated that a total of 30 million
W-2s will be removed from suspense and credited to the records of individual
workers through these new efforts.
Helping Individuals
and Employers Find Missing Earnings
As I have mentioned,
an individual may contact us at any time in the event that earnings are
missing from his or her earnings record or not correctly posted. SSA makes a concerted effort to fully resolve any discrepancy.� We review the
individual's record, item-by item, including all earnings and employers,
in order to assist the individual in identifying the earnings that are
in question.� We request that the individual provide SSA with as much evidence
of the earnings (Forms W-2, pay stubs, etc.) as may be available.� With
the individual's permission, we contact any employers and request that
the employer check all records for possible evidence of earnings.�
In addition, we check the suspense
file both by the worker's SSN and by employer identification number in
an attempt to locate the earnings in question.� If SSA is satisfied that the earnings
in the suspense file belong to the worker based on the evidence that has
been provided by the worker, the worker's earnings record is credited with
the earnings.�
In addition to these processing
activities, SSA assists employers to make sure that the name and SSN provided
to them by new employees match the information on our records.
SSA has successfully provided
SSN verification services to the employer community for many years.� In
the beginning, this was a manual process which was highly labor intensive.� SSA's
verification workloads have increased as the use of the number has expanded.� Now,
SSA provides SSN verification for employers through a special employer
800 number. �In addition, SSA verifies SSNs for employers via the Employer
Verification System (EVS).�� As of January 2004, approximately 13,500 employers
have registered for EVS.� In addition, in FY 2003 we responded to nearly
1.1 million telephone calls at our employer reporting service center.
EVS is a free, convenient
way for employers to verify employee SSNs.� EVS provides several options
to employers depending on the number of SSNs to be verified.� For up to
five SSNs, employers can call SSA's toll-free number for employers - 1-800-772-6270
- weekdays from 7:00 a.m. to 7:00 p.m.� Employers may also use this number to get answers to any questions they have
about EVS, or to request assistance.
Employers also have the
option to submit a paper listing to the local Social Security Office to
verify up to 50 names and SSNs.� In addition, they may use a� simple registration
process to verify requests of more than 50 names and SSNs or requests submitted
on magnetic media (regardless of how many items are being verified).� All
these requests, whether made via phone, paper, or magnetic media, are handled
through the EVS system.� However, from an efficiency and accuracy standpoint
we plan to encourage electronic verification via the internet, and hope
to continue rolling out SSNVS, which is being piloted.
The Social Security Number Verification Service (SSNVS), is an internet option to verify the accuracy of employees'
names and SSNs by matching the employee-provided information with SSA's
records.� To date, we have processed over 4.5 million verifications for
the 85 employers who are participating in the pilot.� SSNVS provides
a quicker and more efficient alternative for employers to obtain verifications
than some of the other methods I have described to verify information. �Beginning
in January 2004, we added death file information to the responses received
by participating employers.� We are considering modifications of other
automated routines to include death file information.� When we review the
pilot results, we will be in the best position to determine what our next
steps should be.
Because correct names
and Social Security numbers (SSNs) on W-2 wage reports are the keys to
successful processing of employer submitted annual wage reports, each of
our regional offices have Employer Service Liaison Officers (ESLOs) who
work with employers to prevent and overcome reporting problems. �Employers
can also visit SSA's website - www.socialsecurity.gov/employer/ - for more information.
Report on Non-Work
SSNs
Section 414 of Public Law
104-208, the Illegal Immigration Reform and Immigrant Responsibility Act
of 1996, requires SSA to report to Congress the number of SSNs assigned
to non-citizens who are not authorized to work in the United States for
whom we receive W-2s.� We issued the most recent report for 2003.� In it,
we stated that SSA credited earnings to 571,193 SSNs which were assigned
to non-citizens who did not have authority to work in the United States when they got their SSN.
SSA also sends an annual
report to DHS about earnings reported to SSA on a social security number
issued to a non-citizen not authorized to work in the U.S.� The information includes the name
and address of the non-citizen, the name and address of the person reporting
the earnings, and the amount of earnings reported.
I need to point out, however,
that since non-citizens are not required to report changes in their work
authorization status to SSA, SSA does not routinely learn of changes in
their authority to work in the U.S.� Therefore, an earnings report under
a nonwork SSN does not necessarily mean that unauthorized work was performed.�
Given the steps we have
taken to limit the assignment of non-work SSNs, we are confident that the
problem of earnings being posted to non-work numbers will diminish.
Cooperation with
DHS and IRS
We have formed an executive
level steering committee, together with DHS, to oversee and direct cooperative
activities.�� The first issues we will discuss will be 1) tightening the
assignment of Social Security numbers to promote homeland security, and
2) identifying potential data sharing activities consistent with rules
governing the use of SSA's data that would best assist each organization
in carrying out its mission.� The group has already met once and we believe
it will be a successful and productive effort.
SSA also supports the Department of Homeland Security (DHS)
in an ongoing joint initiative, known as the Basic Pilot.� The pilot is
designed to assist participating employers in confirming employment eligibility
for newly hired employees.� Participating employers use an automated DHS
system to verify SSNs and alien registration numbers through verification
checks of SSA and DHS databases.� As of January
1, 2004, there
were over 13,000 individual employer sites using the Basic Pilot.� SSA
receives over 45,000 Basic Pilot requests each month.
We have established an
interagency effort with IRS to work on issues of mutual concern.� This
is a high level group that will work to resolve issues and cooperate on
efforts that cross agency lines.� We had our first meeting on March 5,
and we anticipate this interagency coordination will be useful and productive
for each agency.
Conclusion
I would like to conclude by emphasizing
that we at the Social Security Administration are committed to strengthening
the integrity of the processes that we use to assign SSNs.� We believe
the recent improvements we have implemented have made it more difficult
for individuals to obtain SSNs from us through fraudulent means.
The difficult challenge we face is
to balance SSA's commitment to assigning numbers quickly and accurately
to individuals who qualify for them and need them to work, with the equally
important need to maintain the integrity of the enumeration system to prevent
SSN fraud and misuse.
We are also continuing
to explore ways to improve the accuracy of our earnings report records
and to limit the growth of the suspense file.�
I want to thank the Chairmen
and members of both subcommittees for inviting me here today and I look
forward to working with you to continue to improve SSA's processes.� I
will be happy to answer any questions you might have.
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