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The Internal Revenue Service (IRS) recently announced they would begin to fine employers up to $50.00 per copy of Form W-2 with mismatched names and Social Security numbers submitted. An employee's incorrect information can prevent the Social Security Administration (SSA) from posting earnings properly. According to SSA officials, these unposted earnings amount to some $328 billion since 1937. The penalties announced by the IRS will be imposed beginning 2004 for filings covering the 2002 tax year.
In an effort to correct errors and properly credit workers' earnings, the IRS is working in association with the SSA. The SSA sends letters to certain employers with a list of employees whose names or Social Security numbers on their W-2 Forms do not match SSA records. Last year the SSA issued some 800,000 "no match" letters to employers advising them of discrepancies with one or more of their employees' Social Security numbers.
To assist in avoiding future problems, the SSA has also unveiled a system by which employers can verify employee Social Security numbers—the SSA-Employee Verification Service (EVS)—which matches employer records of current or former employee names and Social Security numbers with SSA's records. The system is free and can be used at any time, from when an employee first starts to work for a company to just before an employer submits the Form W-2s to the various government agencies.
To encourage use of the system and allay employer's concerns about being fined two years after filing the W-2s, the IRS has advised that employers can show "due diligence" and avoid the penalties by using the EVS system to verify their employee's social security numbers.
What Should You Do if You Receive a No-Match Letter?
- Check your reports to the SSA to make sure there were no errors on your end. Sometimes employer wage reports have typographical mistakes. Reviewing the information provided to you on employee W-4 forms is a quick way to check for these errors. Inform SSA of any discrepancies you may have inadvertently caused.
- Explain to employees that the SSA is trying to properly credit each worker's earnings account and needs the correct social security number and name to do this. Tell the employees that at this time you're trying to correct the records. Suggest that they check to see whether or not the name on their Social Security card or the number listed by SSA has an error, or should be changed due to a name change, i.e., marriage, divorce.
- Do not ask employees on the no-match list to bring in their Social Security card or other immigration-related documents. Immigration law requires employers to check new hires to ensure that they have work authorization, and to fill out an INS form I-9. Employees may show employers any document listed on the INS I-9 form to comply with this requirement. Once this is done, employers are not permitted to re-check an employee's immigration documents, as this can constitute unlawful discrimination. However, if the employee has provided a Social Security card as a List C document (and has not provided a List A document), you must request a different document be presented for the form I-9, unless the employee can quickly correct the mismatch. In these cases it is best to consult with counsel.
- Do not assume that workers on the no-match list are undocumented or have provided false information. There are many reasons why the employee's name or number might not match the SSA database records. The SSA itself states in its no-match letter that the reasons include typographical errors, incomplete or blank names or Social Security numbers, or name changes. You are not considered "on notice" that any of your employees are undocumented if you receive a no-match letter because immigration laws only prohibit employers from knowingly hiring or retaining undocumented workers.
- Do not fire, suspend, intimidate, or threaten any employee whose name is on the no-match list with termination or any other adverse action. If you do, you may be violating federal and state laws prohibiting discrimination.
- Promptly report any errors to SSA that you or your employees find to ensure that the personal earnings records of your employees are accurately reported and credited. Some no-match letters give employers and employees 60 days to respond, but SSA has no authority to enforce this deadline.
- Withhold taxes at a "Single with 0 Exemptions." If the employee does not correct the mismatched information in a timely manner, the IRS requires that the employer withhold taxes as if the employee were single and had 0 exemptions. If you comply with this requirement, the IRS advises that it will not fine you for submitting W-2s with mismatched numbers.
What Can You Do to Ensure Receipt of Correct Social Security Information?
- Post a general notice to all employees that they should compare the name and Social Security number that appears on their check stubs with that on their Social Security cards to ensure that information is exactly the same. Include the same generalized notice with all employees' check stubs.
- Establish procedures to ensure that correct information is received when an employee is first hired. Use the SSA Employee Verification Service to verify employee information when they first complete their W-4 forms. The EVS permits employers to verify up to five names and numbers at a time by calling EVS at 1-800-772-6270. If you need to verify the information of more than 5 employees at a time, visit the SSA website at www.ssa.gov/employer_info/evs2000.html for instructions.
- If you are unable to verify the information and are not relying on the Social Security card for the form I-9, you must withhold taxes at a "Single with 0 Exemptions."
- Periodically during the year, request for employees to notify the company's Human Resources Department of any name changes that may have occurred. Do not make any name changes unless the employee provides the Social Security card showing the name change.
- Taking the above action upon receipt of a no-match letter and following the recommended steps to prevent being provided incorrect information are an employer's best insurance for avoid IRS fines for mismatches.
For more information regarding Krukowski & Costello's training programs and publications, please call (414) 423-1330 or e-mail Krukowski & Costello's educational services department.
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