How Does Illegal Immigration Actually Affect Social Security?

Thanks in large part to 2024's presidential election, the topic of immigration has been at the forefront of many conversations. From political talking points to economic concerns, illegal immigration, in particular, has had a significant amount of attention. In 2023, the foreign-born immigrant population of the U.S. reached a record high of 47.8 million people, according to the Pew Research Center. This represented the largest annual increase (at 1.6 million) in immigrants since 2020, and it's worth noting that 77% of this population is in the U.S. legally.

The 23% of the current immigrant population (or, about 11 million people) that is undocumented represents a more than tripling in size since 1990, when the undocumented population was 3.5 million. However, the country hit its peak undocumented immigrant population total in 2007, at 12.2 million people. All of this is to say that immigration, both legal and illegal, are not new issues for the U.S. or issues that are likely to be solved anytime soon. With that said, the financial implications of immigrants, especially on federal programs like Social Security, which is facing a funding shortfall in the near future, can be significant. Understanding how immigration affects Social Security, and how it will continue to affect federal programs in the future, can be particularly important when discussing policies aimed at the country's current immigration situation. Let's dive into the factors affecting Social Security's current funding cliff, and how immigrants end up receiving less than they ultimately pay for.

There are significant societal issues currently affecting Social Security's funding long-term. As it stands in 2024, Social Security's funds are due to be depleted by 2033 (barring any significant changes to the program that might speed up or slow down this eventual financial cliff). Perhaps one of the most significant issues leading to Social Security's shortfall situation has to do with something known as a worker-to-beneficiary ratio. Essentially the number of people currently (or soon to be) receiving Social Security benefits far exceeds the number of actual workers paying into Social Security. This is due, in part, to the silver tsunami of baby boomers all reaching retirement age at the same time. In fact, the share of the country's population aged 65 and over has more than doubled since 1940, according to the U.S. Census Bureau. However, other factors like the country's declining birth rate and the fact people are living longer, also both contribute to the ratio's decline.

This is where illegal immigrants come into the picture. While not often discussed, undocumented immigrants are ultimately a significant part of the country's current Social Security funding pipeline. According to a report from the Congressional Budget Office, immigration (both legal and illegal) will be the sole driver of population growth in the U.S. by 2040. This, combined with the fact that immigrants account for 19% of the country's labor force (despite only making up a little more than 14% of the population) could lead to significant changes in the worker-to-beneficiary ratio in the U.S.

As you are probably aware, Social Security receives part of its total income through payroll taxes levied on workers (with other income coming from interest on its trust funds). While legal immigrants are able to eventually receive Social Security benefits, it's worth noting that they are largely predicted to receive lesser amounts. Despite paying the same tax rate as native-born U.S. workers, immigrants generally earn lower lifetime wages and have fewer counted employment years when it comes to eventually calculating their benefits amounts. According to a 2018 report from the CATO Institute, just 65% of foreign born/immigrant workers received Social Security benefits compared to 84% of native-born U.S. workers.

However, the situation is even more complicated for illegal immigrants. While many illegal immigrants pay payroll tax on their income they will never receive Social Security benefits from those taxes. The Institute on Taxation and Economic Policy found that, in 2022, undocumented immigrants paid a whopping $96.7 billion in federal, state, and local taxes. Of that amount, $59.4 billion was paid to the federal government, much of which was for programs that these immigrants will not ultimately have access to. In 2022, undocumented immigrants paid $25.7 billion in Social Security taxes, $6.4 billion in Medicare taxes, and $1.8 billion in unemployment insurance taxes. This means that, whether legal or undocumented, ultimately immigrants are contributing significant amounts of money to the Social Security system, with little hope of receiving the same benefits as native born U.S. workers for their same taxes.