Abstract
This mixed-methods study examines the impact of cash work and income underreporting on two U.S. communities of color. We investigate how African Americans and Latinos obtain knowledge about Social Security and the Earned Income Tax Credit (EITC), make decisions to report or underreport pay, and confront barriers to formal payment. Those who underreport income accumulate fewer Social Security credits and are less likely to take advantage of the EITC and other safety net programs. Understanding why these populations underreport income can inform financial literacy efforts, guide attempts to increase their willingness to report income, and promote greater engagement with safety net programs.
Keywords
Social Security, Earned Income Tax Credit, EITC, African Americans, Latinos, informal economy, financial literacy
Author’s note: The research reported herein was pursuant to a grant from the U.S. Social Security Administration (SSA), funded through the New York Retirement and Disability Research Center (NYRDRC) in 2024. In February 2025, the grant was abruptly terminated by the SSA. The findings and conclusions expressed are solely those of the authors and do not represent the views of the SSA, NYRDRC, or the authors’ affiliations.
Twelve million U.S. workers are paid partly or all in cash (U.S. Bureau of Labor Statistics, 2024). Payment in cash, meaning any form of liquid currency including funds linked to apps, leads to underreporting income and not paying FICA (Federal Insurance Contributions Act) taxes, hindering accumulation of Social Security credits and delaying age of vesting for benefits (Auten & Langetieg, 2023; Smith Nightingale & Wandner, 2011).
Those who do not report earnings on W-2 or 1099 federal wage and tax statements forgo other advantages of formal employment: wage- and hour-regulation protection, unemployment, disability, worker compensation insurance, employer-provided health insurance, and the Earned Income Tax Credit (EITC).
This mixed-methods study examines the impact of cash work and income underreporting on African Americans and Latinos. We investigate how they obtain knowledge about Social Security and the EITC, make decisions to report or underreport pay, and confront barriers if they want to be paid formally or “on the books.” Those who underreport income accumulate fewer Social Security credits and are less likely to take advantage of the EITC and other safety net programs. Understanding the reasons why Latinos and African Americans, in particular, underreport income can inform financial literacy efforts, guide attempts to increase their willingness to report income, and promote greater engagement with safety net programs meant to protect them, like Social Security and the EITC.
Latino and African American workers are more likely than White workers to be stuck in lower wage, “frontline” jobs with high turnover, limited career advancement, and no retirement savings or other benefits. Such populations are overrepresented in low-wage manual labor and service work: farmwork, food processing and meat packing, construction, transportation, and services such as landscaping, housecleaning, hairdressing, and home healthcare (Batalova, 2025; Quandt & Arcury, 2019; Williams & Darrity, 2022).
High rates of bodily risk and injury, combined with low access to affordable health insurance and quality healthcare, result in workers suffering more frequent job interruptions. Moreover, these jobs often involve subcontracting, contingent labor, and underpayment. The workers are often paid in cash, and their income may be unreported or underreported on wage and tax forms, which limits their access to the full protections and advantages of formal employment including wage and hour regulation, unemployment compensation, disability, worker compensation insurance, the EITC, and Social Security insurance (Rabinovich et al., 2017).
The Social Security insurance benefits of African American and Latino retirees tend to be lower than those received by whites. Earning disparities are one factor but another reason is that arduous manual labor, hazardous work conditions, and poor healthcare during such populations’ working years force them to retire at the earliest opportunity, reducing the value of their lifetime benefits (Quant & Arcury, 2019).
More than half of Latinos (55%) and African Americans (57%) start claiming Social Security benefits before reaching their “full retirement age” of 66–67, at which point workers would qualify to receive, on average, 40% of their pre-retirement income. Retiring at age 62 reduces a worker’s monthly benefit by 30% (Federal Reserve Board, 2025; Holmes, 2024). Social Security is supposed to provide just one part of income during retirement. But due to a lack of retirement pensions and other assets, 63% of Latino retirees and 33% of Black retirees rely upon these minimal Social Security benefits to provide 90% or more of their retirement income, compared to 24% of White households (Collins & Robb, 2021; Sonnega et al., 2023). Such extreme rates of dependence upon Social Security benefits highlight the inordinate importance of maximizing this minimal safety net for many Latinos and for U.S. retirees overall, in the absence of other sources of income in retirement.
‘Now that she is 59 and has a disability, she acknowledged that she might be better off now if she had reported the income.’
This research is based in Metropolitan Chicago, where Black people and Latinos each constitute about 30% of the population (United States Census Bureau, 2024). The project’s qualitative methodology involved 64 study participants of African American and Latino heritage with valid Social Security numbers. Study participants would have been asked to complete extensive survey questionnaires and to take part in focus group discussions; also a sub-sample of respondents would have been invited to participate in follow-up interviews. The sudden termination of the grant in early 2025 by the Social Security Administration prevented us from conducting the full project.
Between February and May 2025, we managed to reach 38% of the sample. We organized four focus groups involving current employees, independent contractors, and retirees. Two focus groups for retirees were held at senior centers associated with affordable housing; the third focus group involved participants in a church program on financial education and the fourth focus group engaged independent contractors and was held virtually over Zoom. Three focus group discussions were held in English and one in Spanish, and all were audio-recorded and transcribed. The survey questionnaires were distributed in digital or paper formats and were completed by all focus group participants representing workers, small business employers, independent contractors, and retirees in each of the three employment categories. Study participants were compensated with a $50 gift card.
The questionnaires solicited information on respondents’ demographic, financial, household, and employment data; jobs (employer size, type, demographics of management and labor force, benefits and reporting structure); knowledge and decision-making on reporting income, payment of FICA and taxes, the EITC, age of retirement, Social Security benefits and other retirement income; and communication with the Social Security Administration.
Once the survey is complete, we intend to use the data to rank respondents’ reasons for underreporting income, evaluate what fraction of earnings workers accept(ed) in cash, and assess respondents’ literacy on Social Security and the EITC. We also will conduct a regression analysis to predict impacts of gender, immigration status, education, household composition, and age on workers’ reporting behavior.
The focus group discussions and follow-up interviews center respondents’ work experience in the formal and informal sectors, knowledge of the advantages and disadvantages of fully reporting their income to the tax authorities, their familiarity with the Social Security and EITC programs, and whether they would have chosen to report more of their income had they better understood the benefits of these two programs. Below, we describe results to date from the questionnaires and focus group discussions involving 38% of the sample.
The participants included 19 women and five men, which included 16 African American, five Latino, and three White people. Participants ranged in age from 25 to 77 (see Table 1, before References). The majority of respondents (10) were single, while seven were widowed/divorced or separated, five were married and two indicated they were unmarried but living with someone. Of these respondents, there were 10 current employees, three independent contractors, 10 retired employees, and one retired independent contractor.
Respondents’ personal income ranged from less than $15,000 to $100,000 or more, but more than half (13) lived on less than $25,000 per year. While we inquired about all sources of income, the most commonly cited were Social Security benefits and earnings— 16 respondents were receiving Social Security benefits and 12 were relying upon earnings as a source of income. Respondents cited multiple and simultaneous reasons for claiming Social Security benefits before the full retirement age, including job loss (1), health (4), caregiving (3), liquidity demand (3), and choosing to retire and take advantage of the Social Security system before it runs out (6).
‘Many retirees cited health as their main reason for retiring at age 62—they were worn out from physically punishing manual labor.’
Our focus group discussions began with a question about the advantages and disadvantages of fully reporting earned income. A review of participants’ opinions indicates that their primary motivation for reporting income is compliance with the law (“just knowing you’re being honest”) and fear of punishment for disobeying the law (“so they won’t come after you”). The second most important reason is to build up enough credits to earn Social Security for your retirement (“so you get more when you retire”), revealing broad awareness that reporting is a prerequisite for receiving benefits.
Questionnaire results buttress these results, with 54% stating their desire to build up Social Security credits or be eligible for employment benefits or EITC, 21% of respondents citing fear of breaking the law as the reason for reporting income, while 17% wanted to leave behind an inheritance for their family. Of the 24 respondents, six admitted to underreporting income, citing reasons related to liquidity-constraint: Half wanted to avoid income taxes, and one wanted to be better able to help people who depend upon them.
When prompted to reflect on their past behavior, most of the participants agreed that when they were “young and naïve,” as one 59-year-old African American participant put it, they “weren’t thinking about retirement” and did not see how their election to report or underreport earnings would affect their financial security in old age. Analogously, a 66-year-old Latino man said,
“What I know now is that Social Security requires a minimum of 40 points or 10 years, yes. That’s what I didn’t know before, and many people will declare, “I don’t want to pay more taxes, lower (my reported earnings) … People think that if they report the minimum, it doesn’t matter. But in the end, it does matter to us. And then, it affects whether they earn enough to cover the (40) points, right? So, what happens? If you pay less and you report less, you don’t have your full points.”
Several African American women who were working or had worked in food and domestic service—sectors that lend themselves to underreporting—admitted they had elected not to report some of their income. One woman reflected on her past practice with regret, even musing that she “was working and being greedy” (by avoiding fully reporting her income and paying FICA). She attributed her need to keep working at age 75 to her mistake, adding “if I knew back then what I know now, I would (report) it.”
Another participant, who worked as a server in a restaurant, equivocated about whether it was good or bad not to have reported her tip income. It was “good money” at the time, she said, and “me and my family needed it.” Now that she is 59 and has a disability, she acknowledged that she might be better off now if she had reported the income.
While these retirees accepted full responsibility for their decision-making, their decisions also were limited by the choices offered to them by their employers, who benefited from underreporting their employees’ income. In other words, workers might not always have a choice in reporting their income. One study participant who arrived in Chicago in 2005 found his first job there working for a subcontractor cleaning luxury department and grocery stores. The subcontractor, he said, “underpaid me, paid in cash, and did not report any of my earnings.” The consequences of this gap in his earnings record are on his mind now as he turns 65 and reviews his eligibility for Social Security benefits. In the questionnaire, one respondent indicated that the reason they did not report all their income was that they would not be able to keep their job if they insisted on reporting earnings.
When explaining the rules, it became apparent that these programs are unnecessarily complicated and implementation exacerbates workers’ lack of trust.
Study participants have only a partial understanding of basic Social Security reporting and claiming rules. This gap became clear in questionnaire responses and focus group discussions. Our assessment of questionnaire data testing respondents’ knowledge of Social Security’s rules revealed that 27% knew precisely the earliest age to claim Social Security retirement benefits; 17% grasped that benefits provided at the full retirement age (66–67) are reduced by 30% by claiming at age 62, and that such a reduction lasts until the claimant’s death; 70% realized that delaying claiming past the full retirement age permanently increased lifetime benefits and 25% understood the amount that benefits would be boosted by delayed claiming until age 70; 82% knew how long Social Security benefits last; and 40% correctly understood that Social Security benefits were taxed.
As for focus group discussions, few participants could specify what percentage of their income an employee must contribute to Social Security and what percentage the employer must contribute on their behalf. Nor did they know that self-employed people must contribute the full 12.4%. Most respondents who were receiving Social Security benefits (6 of 16) were younger than age 63, which is consistent with behavior documented in studies of national data (Coile et al., 2002; Sass et al., 2013; Dushi et al., 2021; Englehart et al., 2022). They were aware that by taking payment prior to full retirement age, they would receive a reduced lifetime benefit, but most didn’t know the exact percentage of the reduction.
Many retirees cited health as their main reason for retiring at age 62; they were worn out from physically punishing manual labor including construction, meat processing, food service, and commercial and residential cleaning. Several participants were suffering from chronic diseases including diabetes and asthma and were receiving Social Security Disability Benefits. Mental health was another cited reason for retiring.
Some yearned for more autonomy: “I didn’t want to be told what to do anymore.” Some felt a need to escape from an unpleasant workplace: “I hated my job, (I left) for my mental health” and “I wanted to enjoy life.” Still others attributed their retirement and decision to start claiming Social Security benefits at age 62 to being forced to retire or having their work hours reduced. Their reasons for early claiming echo studies of national data of Social Security claiming decisions (Rabinovich & Samek, 2018; Shoven et al., 2018).
As for the EITC, there was general awareness of the credit, but less knowledge of its rules, including ages of eligibility and the effect of age and number of children on the credit. Upon learning what the EITC benefit offered, participants expressed interest in learning more about eligibility requirements.
The lack of awareness of how these programs work explains the readiness of poor workers to accept payment in cash and underreport income. Ignorance of these rules should not be interpreted as a sign of disinterest; instead focus group participants expressed a desire to learn more about these programs. When explaining the rules of Social Security and the EITC, it became apparent to us that these programs’ rules are unnecessarily complicated and the ways they are implemented exacerbates the lack of trust that workers exhibit toward the programs. Only 1 of the 24 people we spoke with understood that the rules were meant to help them and not take advantage of them.
This project has shed light on reasons for underreporting income. Some are structural factors such as employers taking advantage of workers; others include workers’ vulnerability due to their liquidity constraints and lack of understanding of the basic rules for two prominent programs in the social safety net—Social Security and the EITC.
Researchers often wonder why low-income marginalized workers claim Social Security benefits early, reducing their benefits by up to 30%, and why EITC take-up is low. Analysis of workers’ grasp of the programs’ rules goes a long way toward resolving that puzzle. Study authors aim to continue interviewing the remaining sample and gather a large enough number of observations to allow for a more robust quantitative analysis.
Acknowledgements: We are grateful to Jesús Macarena-Avila, the project research assistant, and to The Resurrection Project of Chicago for helping to recruit participants and organizing sessions. We appreciate Teresa Ghilarducci’s guidance in this study’s development.
Karen Richman, PhD, is director of the Latino Studies Program at the University of Notre Dame. Joelle Saad-Lessler, PhD, is a professor and associate dean of undergraduates in the School of Business at Stevens Institute of Technology. Frank W. Heiland, PhD, is a professor of Public and International Affairs at CUNY-Baruch College and associate director of the CUNY Institute for Demographic Research.
Photo credit: Shutterstock/PhotodriveStudio
| Table 1. Demographic information on the sample of focus group participants gathered from their questionnaires. | |
| Observations | 24 |
| Age | |
| 25–29 | 2 |
| 30–49 | 0 |
| 50–61 | 5 |
| 62–65 | 7 |
| 66 or older | 10 |
| Gender | |
| Male | 5 |
| Female | 19 |
| Country of birth | |
| US | 21 |
| Foreign country | 3 |
| Race/ethnicity | |
| White non-Hispanic | 3 |
| Black non-Hispanic | 16 |
| Hispanic/Latino | 5 |
| Marital status | |
| Married | 5 |
| Living with a partner, not married | 2 |
| Single | 10 |
| Widowed/divorced/separated | 7 |
| Personal income | |
| $100,000 or more | 2 |
| $50,000–74,999 | 1 |
| $25,000–49,999 | 8 |
| $20,000–24,999 | 4 |
| $15,000–19,999 | 5 |
| Less than $15,000 | 4 |
| Sources of income | |
| Business income | 2 |
| 401K / IRA or other retirement savings | 5 |
| Earnings (including wage / salary) | 12 |
| Housing assistance | 4 |
| Investments | 2 |
| Medicaid | 5 |
| Other government benefits | 1 |
| Pension | 5 |
| Rental property | 1 |
| Social Security benefits | 16 |
| SNAP – Food stamps | 4 |
| Support from family/friends/community | 1 |
| Employment status | |
| Current employee | 10 |
| Current independent contractor with no employees | 3 |
| Retired – former employee | 10 |
| Retired independent contractor with no employees | 1 |
References
Auten, G. & Langetieg, P. (2023). The distribution of underreported income: What we can learn from the NRP. U.S. Department of the Treasury, Internal Revenue Service. https://www.irs.gov/pub/irs-soi/23rpdistributionunderreportednrp.pdf
Batalova, J. (2025). Frequently requested statistics on immigrants and immigration in the United States. Migration Policy Institute. https://www.migrationpolicy.org/article/frequently-requested-statistics-immigrants-and-immigration-united-states
Collins, J. M., & Robb, C. (2021). Inequalities in retirement security: Unique challenges for African American households. Society of Actuaries Research Institute. https://www.ssa.gov/policy/docs/workingpapers/wp116.html
Coile, C. C., Diamond, P., Gruber, J., & Jousten, A. (2002). Delays in claiming Social Security benefits. Journal of Public Economics, 84(3), 357–385. https://doi.org/10.1016/S0047-2727(01)00129-3
Dushi, I., Friedberg, L., & Webb, A. (2021). Is the adjustment of Social Security benefits actuarially fair, and if so, for whom? [Working paper 2021-421]. Michigan Retirement and Disability Research Center. https://dx.doi.org/10.7302/4176
Engelhardt, G., V., Gruber, J., & Kumar, A. (2022). Early Social Security claiming and old-age poverty: Evidence from the introduction of the Social Security early eligibility age. Journal of Human Resources 57(4),1079–1106. https://doi.org/10.3368/jhr.57.4.0119-9973R1
Federal Reserve Board. (2025). Report on the economic well-being of U.S. households. https://www.federalreserve.gov/consumerscommunities/sheddataviz/unexpectedexpenses.html
Holmes, T. (2024). How much of my income will Social Security replace? AARP. https://www.aarp.org/social-security/faq/income-replacement-rate
Quandt, S., & Arcury. T. (2019). The status of Latinx occupational health. In A. Martínez & S. Rhodes (Eds.), New and emerging issues in Latinx health (pp. 197–216). Springer.
Rabinovich, L., & Samek, A. (2018). No regrets: Qualitative evidence on early claiming of Social Security retirement. Journal of Aging Studies, 46, 17–23. https://doi.org/10.1016/j.jaging.2018.05.002
Rabinovich, L., Peterson, J., & Smith, B. (2017). Hispanics’ understanding of Social Security and the implications for retirement security: A qualitative study. Social Security Bulletin, 77(3). https://www.ssa.gov/policy/docs/ssb/v77n3/v77n3p1.html
Sass, S. A., Sun, W., & Webb, A. (2013). Social Security claiming decision of married men and widow poverty. Economics Letters, 119(1), 20–23. https://doi.org/10.1016/j.econlet.2013.01.007
Shoven, J. B., Slavov, S. N., & Wise, D. A. (2018). Understanding Social Security claiming decisions using survey evidence. Journal of Financial Planning 31(11), 35–47.
Smith Nightingale, D., & Wandner, S. (2011). Informal and nonstandard employment in the United States: Implications for low-income working families. Urban Institute. https://www.urban.org/sites/default/files/publication/32791/412372-informal-and-nonstandard-employment-in-the-united-states.pdf
Sonnega, A., Chen, Q., Cao, Q., & Carpenter, R. (2023). Racial and ethnic differences in lifetime work: Environmental exposures and early disability retirement. University of Michigan Retirement and Disability Research Center. https://mrdrc.isr.umich.edu/wp-content/uploads/2024/06/wp482.pdf
U.S. Bureau of Labor Statistics. (2024, November 8). Contingent and alternative employment arrangements summary – JULY 2023 [Press release]. https://www.bls.gov/news.release/conemp.nr0.htm
United States Census Bureau. (2024). Quickfacts. https://www.census.gov/quickfacts/fact/table/US/PST045222
Williams, V., & Darity, W. (2022). Understanding black-white disparities in labor market outcomes requires models that account for persistent discrimination and unequal bargaining power. Economic Policy Institute. https://www.epi.org/unequalpower/publications/understanding-black-white-disparities-in-labor-market-outcomes/
