How do payroll taxes (Social Security and Medicare) apply to undocumented workers paid under the table?
Executive summary
Undocumented workers often pay Social Security and Medicare taxes when their wages are processed through formal payroll systems or when employers withhold payroll taxes—even though many cannot access the benefits those taxes fund; estimates put undocumented contributions at tens of billions annually (for example, roughly $25.7B to Social Security and $6.4B to Medicare in 2022, per one study) [1][2]. Researchers and policy groups say many undocumented people also pay income, sales and property taxes, and some use ITINs or borrowed/false SSNs to file or have withholdings taken [3][4][5].
1. How payroll taxes get collected from undocumented workers — the mechanics
Payroll taxes (Social Security and Medicare) are collected when an employer treats a worker as an employee and withholds FICA from wages; that withholding happens regardless of the worker’s immigration status, and many undocumented workers have payroll taxes automatically withheld or pay via filings [3][5]. Some undocumented workers file taxes using an IRS Individual Taxpayer Identification Number (ITIN); others work using borrowed or false Social Security numbers and still have payroll taxes taken from their paychecks, contributing to Social Security and Medicare financing even if they will likely not claim benefits [4][2].
2. “Under the table” pay: reality vs. common belief
When employers pay strictly cash “under the table” with no reporting or withholding, payroll taxes are not collected through formal FICA withholdings — by definition those wages bypass payroll tax systems. However, available reporting stresses that many undocumented workers do not exclusively work off the books; substantial numbers either have withholding or later file returns using ITINs, so blanket statements that undocumented workers never pay payroll taxes are misleading [5][3][2]. The IRS and analysts note both behaviors exist: some wages are hidden, others are processed and taxed [6][2].
3. Scale: how much do undocumented workers put into Social Security and Medicare?
Estimates from policy and research groups place undocumented workers’ contributions in the tens of billions annually. One reporting of an Institute on Taxation and Economic Policy (ITEP)-based study cites $25.7 billion in Social Security taxes and $6.4 billion in Medicare taxes in 2022; other aggregate estimates put total federal, state and local tax contributions by undocumented immigrants near $100 billion a year [1][5][7]. Different analyses use varying methods and definitions, so headline numbers vary across studies [5][7].
4. Benefits mismatch: pay in, limited access out
Multiple sources emphasize that undocumented workers often fund programs they are barred from accessing: payroll taxes fund Social Security and Medicare, yet many undocumented workers are ineligible for those benefits; researchers call this an asymmetry—contributions without comparable benefit receipt [3][8]. Analysts also note that if legalization or work authorization expanded, more workers would “emerge” from the underground economy and pay payroll taxes formally, increasing collections [7][9].
5. Legal and enforcement context: employer obligations and penalties
U.S. tax rules treat pay to undocumented workers as subject to the same withholding and reporting obligations as pay to other employees; employers who hire undocumented workers may face fines and sanctions, and IRS guidance treats such workers as subject to taxation even if they lack immigration status [6]. That means legal exposure is on employers who misclassify or fail to withhold; it also creates incentives for some employers to use cash payment or misclassification to avoid taxes.
6. Data limits and competing perspectives
Estimates depend on assumptions about how much work is formal versus cash, use of ITINs, and the number of undocumented workers—variables that different organizations model differently [5][10]. Advocacy groups highlight the fiscal contributions of undocumented workers to argue for more inclusive policies; other commentators emphasize rule-of-law and enforcement. Available sources do not mention precise current IRS audit rates for undocumented-worker payroll or comprehensive national counts of truly “under-the-table” jobs nationwide (not found in current reporting).
7. What this means for workers and public policy
The fiscal reality is twofold: undocumented labor both subsidizes federal programs through payroll taxes and often remains excluded from the benefits those taxes fund, creating a redistribution argument used by reform advocates [2][8]. Policy proposals discussed in the literature include work-authorization pathways to bring more wages into formal payrolls and increase tax compliance; opponents frame legalization as an incentive issue. Readers should weigh the empirical estimates (which vary by method) and the implicit agendas of research sponsors when interpreting headline numbers [7][9].
Limitations: this account draws only on supplied reporting and studies; available sources do not provide a definitive census of how many undocumented workers are paid entirely off the books versus those with formal withholding (not found in current reporting).