BNUMBER:  B-261522
DATE:  September 29, 1995
TITLE:  Social Security Trust Funds' Appropriations

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Matter of:Social Security Trust Funds' Appropriations

File:     B-261522

Date:     September 29, 1995
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DIGEST

The amount of funds appropriated to the Social Security trust funds 
under 42 U.S.C.  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.
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DECISION

By letter dated May 24, 1995, the Deputy Commissioner for Finance, 
Assessment and Management, Social Security Administration (SSA), 
requested our opinion on whether SSA can use wage data collected by 
the Internal Revenue Service (IRS) in calculating the amount of 
employee wages for purposes of section 201(a)(3) of the Social 
Security Act (Act).  Section 201(a)(3) appropriates from the general 
fund of the Treasury into the Social Security Old Age, Survivors and 
Disability Insurance and Medical Health Insurance trust funds (Trust 
Funds) amounts determined by applying the applicable tax rate to 
employees' wages as "certified by the Commissioner of Social Security 
on the basis of the records of wages established and maintained by 
such Commissioner in accordance with [wage information] reports 
[provided the IRS]."  42 U.S.C.  401(a)(3).

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.  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.  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. 18, 1987.  

Because of difficulties in reconciling amounts reported by employers 
on their Forms 941 and on their W-2s and W-3s, SSA has not made a 
final certification of wages for purposes of section 201(a)(3).  In 
1992, we reported that there was a cumulative difference of over $55 
billion between IRS's and SSA's wage records.  Reconciliation Improved 
SSA Earnings Records, but Efforts Were Incomplete, GAO/HRD-92-81, 
Sept. 1992 (1992 GAO Report). 

Soon after Congress enacted the CAWR system, SSA and IRS entered into 
a formal Memorandum of Understanding (MOU) to share wage data and to 
resolve, or reconcile, the differences in the wages reported to them.  
Generally, the reconciliation process includes SSA contacting 
employers to obtain corrected wage information.  SSA also refers 
certain cases to IRS to contact employers and to assess penalties.  
Penalty enforcement became a critical component of the reconciliation 
process beginning in 1988, and remains so under the most recent MOU, 
implemented in 1994.  

SSA and IRS established a three-step process to determine trust fund 
revenues:    (1) initial transfers based on revenue estimates in the 
President's annual Budget submission to the Congress; (2) interim 
adjustments based on SSA's certification of taxable wages reported by 
employers on quarterly 941 reports to IRS; and (3) final 
certifications based on SSA's detailed wage records of earnings, 
including the W-2 and W-3 forms filed by employers.

Currently, SSA is unable to reconcile approximately $11.1 billion.  Of 
the amounts of social security taxes employers have reported as owed 
to the IRS, SSA cannot allocate, on the basis of the W-2s and W-3s 
submitted to it by employers, the unreconciled amounts to individual 
employee accounts.  SSA carries the unreconciled amounts in a suspense 
account for allocation to the record of wages of the proper employees 
once the amounts are reconciled.  Because of its concerns about the 
completeness of the wage records submitted to it, SSA has only made 
interim certifications of Trust Fund revenues to the Secretary of the 
Treasury.  On this basis, the Trust Funds have been "provisionally" 
credited with the unreconciled amount.

Analysis

Until last year, SSA recorded the "unreconciled" amount (the $11.1 
billion) as part of the Trust Fund's revenues on its financial 
statement.  At the encouragement of its Inspector General, SSA showed 
this amount as a liability to the general fund on its fiscal year 1994 
statement.  The Inspector General has argued that under section 
201(a)(3), the Trust Fund is entitled only to the amount of taxes 
imposed based on wages shown in "records of wages established and 
maintained" by SSA.[7]  According to the Inspector General, when SSA 
cannot reconcile its W-2 and W-3 data to IRS's Form 941 data, SSA must 
defer to the W-2 and W-3 data.  Because SSA cannot account for the 
additional $11.1 billion shown on the Forms 941, the Inspector General 
reasoned, the Trust Fund is not entitled to it.

SSA argues, on the other hand, that in certifying wages pursuant to 
section 201(a)(3), SSA can take into account information reported to 
IRS on Forms 941.  SSA maintains that the information reported on the 
Forms 941 is the most accurate and complete wage information available 
to the government.  SSA also argues that to the extent unreconciled 
Form 941 wages exceed W-2 wages, it is logical to include the 
unreconciled wages in the amount certified.  In this regard, SSA 
points out that the employers treated the unreconciled amount as 
Social Security wages and reported social security taxes on such 
wages.  Further, according to SSA, there is insufficient evidence to 
conclude that they do not represent actual Social Security wages.  
Finally, SSA observes that excluding wages reported on Forms 941 from 
the amount certified would result in crediting to the general fund 
amounts that employees had paid to satisfy their social security tax 
liability.

The issue is whether SSA can use wage data collected by IRS in 
certifying the amount of wages for purposes of section 201(a)(3).  To 
the extent relevant here, section 201(a)(3) provides as follows:

     "There is hereby appropriated to the Federal Old-Age and 
     Survivors Insurance Trust Fund . . . out of any moneys in the 
     Treasury not otherwise appropriated, amounts equivalent to 100 
     per centum of        . . . (3) the taxes imposed . . . with 
     respect to wages . . . reported to the Secretary of the Treasury 
     or his delegates pursuant to subtitle F of Title 26 after 
     December 31, 1954, as determined by the Secretary of the Treasury 
     by applying the applicable rates of tax . . . to such wages, 
     which wages shall be certified by the Commissioner of Social 
     Security on the basis of the records of wages established and 
     maintained by such Commissioner in accordance with such reports . 
     . . ."

As the Inspector General points out, section 201(a)(3) requires the 
Commissioner to certify wages "on the basis of the records of wages 
established and maintained" by the Commissioner.  In analyzing the 
issue at hand, it is important to view section 201(a)(3) as a whole.  
The certification requirement imposed on SSA by section 201(a)(3) 
refers to records of wages established and maintained by SSA "in 
accordance with such reports."  The reference to "such reports" 
includes the Form 941 mentioned earlier.  The word "accordance" is 
defined to mean in agreement, harmony, and consistent with.  Webster's 
Ninth New Collegiate Dictionary (1987).  The plain meaning of the 
language of section 201(a)(3), referring to SSA records maintained "in 
accordance with" the Forms 941, clearly indicates that the law expects 
SSA's records to reflect the wage data reported to IRS on the Forms 
941.

One could argue that the reference to "such reports" only meant the 
old Form 941A (not the aggregate wage data captured by the Form 941) 
that reported individual employee wage information by employee name 
and social security number.  This reading would, however, render the 
statutory phrase "in accordance with such reports" meaningless, 
contrary to established maxims of statutory construction.  We also 
find no indication of a congressional desire to exclude reliable 
sources of information such as the Forms 941 from the Commissioner's 
consideration when certifying wages.  To the contrary, Congress in 
section 205 of the Social Security Act, 42 U.S.C.  405, did not limit 
the sources of information the Commissioner could use in establishing 
individual wage accounts.  Section 205(c)(2)(A) provides as follows:

     "On the basis of information obtained by or submitted to the 
     Secretary, and after such verification thereof as he deems 
     necessary, the Commissioner of Social Security shall establish 
     and maintain records of the amounts of wages paid to and the 
     amount of self-employment income derived by, each individual and 
     of the periods in which such wages were paid and such income was 
     derived . . . ."

Section 232 of the Act appears to confirm this reading.  Before 
section 232 was enacted in 1976, SSA received essentially the same 
wage information that was sent to IRS, and the information went to 
both agencies at the same time.  Before 1976, therefore, SSA had 
little difficulty in concluding that the wage information in its 
individual employee files were "in accordance with" wage information 
reported to IRS and Treasury.  Thus, SSA had no problem making its 
final certification of wages required under section 201(a)(3).  When 
Congress enacted section 232 in 1976, initiating the CAWR, Congress 
anticipated the need for SSA to access IRS wage data to ensure that 
SSA's wage records would be as accurate after implementation of CAWR 
as before.  Section 232 directs the Secretary of the Treasury to make 
the Forms 941, as well as other necessary tax information, available 
to SSA.  It authorizes Treasury and SSA to enter into an agreement to 
accommodate such exchange of information; and it instructs SSA to 
process that information.  42 U.S.C.  432.  

Reading section 232 together with sections 201(a)(3) and 205(c)(2)(A) 
suggests that SSA should not rely, for purposes of the section 
201(a)(3) wage certification, solely on data collected from the W-2s 
and W-3s, but also may refer to data from the Forms 941.[8]  We find 
support for this view in the legislative history of section 232.  The 
Senate Finance Committee explained that IRS and SSA should "enter into 
an agreement for cooperative processing of a revised annual wage 
reporting form . . . in a manner that will most effectively and 
efficiently provide each agency with the information it requires."  S. 
Rep. No. 550, 94th Cong., 1st Sess. 9, 10 (1976).  Moreover, the 
Senate Finance Committee stated that "the information sharing should 
not have any impact on the financial status of the social security 
program."  Id. 

SSA's characterization of the reliability of the IRS Form 941 wage 
data is, we believe, sound.  SSA asserts that the Form 941 data is the 
most accurate and complete wage data available primarily because 
employers, when reporting it as wages subject to social security 
taxes, claimed taxes as due on it.  SSA's assertion is compelling, 
especially in light of the fact that the information reported on a 
Form 941 is subject to IRS audit and the employer is subject to 
penalty for filing incorrect information.  Consequently, we conclude, 
to the extent SSA believes the Form 941 data will improve the accuracy 
of its own records, SSA may consider, and where appropriate use, this 
data in making a final certification.  

/s/James F. Hinchman
for Comptroller General
of the United States  

1. SSA's earnings records include both wages and self-employment 
income.  The issue here is limited to wages earned by individuals 
employed by others.  

2. Pursuant to the Social Security Independence and Program 
Improvements Act of 1994, Pub. L. No. 103-296, 108 Stat. 1464 (1994), 
under which SSA was made independent of HHS, beginning in 1995 the 
Commissioner of SSA must certify wages.  SSA has, in the past, always 
certified wages on behalf of the Secretary of HHS.

3."The preparation and filing of this quarterly report involve[d] 
considerable effort and expense on the part of employers particularly 
in the case of small and medium-sized companies which d[id] not have 
the advantage of computerized payroll systems."  S. Rep. No. 550, 94th 
Cong., 1st Sess. 9 (1975). Congress estimated the annual cost to small 
business as a result of this requirement for detailed quarterly 
reports to be as high as $235 million per year in 1975 dollars.  Id.

4. This law directed IRS and SSA to "enter into an agreement for 
cooperative processing of a revised annual wage reporting form (i.e., 
form W-2) in a manner which will most effectively and efficiently 
provide each agency with the information it requires."  S. Rep. No. 
550, 94th Cong., 1st Sess. 9 (1975).

5. W-2 and W-3 forms are due by the end of February following the tax 
year ending December 31.  The date for the 4th quarter filing of the 
Form 941 is the end of January.

6. SSA informed us that the primary reason for the discrepancies is 
the different reporting due dates for the Forms 941 and the W-2 and 
W-3 forms.  See n. 5 supra.   Other reasons include (1) employers 
misunderstanding of the wage reporting instructions, (2) businesses 
terminating operations during the year, and (3) errors made and 
corrected with either IRS or SSA but not both.  See Reconciliation 
Improved SSA Earnings Records, but Efforts Were Incomplete, 
GAO/HRD-92-81, Sept. 1992, at 22-26. 

7. This opinion is consistent with the view expressed in an earlier 
GAO report, Reconciliation:  Improved SSA Earnings Records, but 
Efforts Were Incomplete,  GAO/HRD-92-81, Sept. 1992, at 27-30.

8."In ascertaining legislative intent, whenever the legislature enacts 
a provision it has in mind previous statutes relating to the same 
subject matter, wherefore it is held that in the absence of any 
express repeal or amendment therein, the new provision was enacted in 
accord with the legislative policy embodied in those prior statutes, 
and they all should be construed together."  2A J.G. Sutherland, 
Statutes and Statutory Construction,  51.02 (4th ed. C.D. Sand ed. 
1972).  See Morton v. Mancari, 417 U.S. 535, 550 (1974); 54 Comp. Gen. 
371, 373 (1974); B-236057, May 9, 1990.