Social Security No Match Letters

In the July edition of the GT Observer, we reported the Social Security Administration’s (SSA) increased vigilance in sending "No Match" letters to employers regarding the social security numbers employers provide the SSA. These letters notify employers that Social Security numbers they provided to the SSA for specific individuals do not match the name in the SSA’s data base. While it can happen for any number of reasons, including innocuous name changes, misspellings, etc., the letters reflect an increased enforcement effort in relation to those who work using an invalid or incorrect social security number. In particular, those without work authorization in the US. GT Attorneys Laura Reiff and Dawn Lurie recently commented on the no-match letters and their consequences during an interview with the Washington Post. GT discussed the chilling effect such letters have had on employers receiving them and the impact on the workforce of many employers. To view the article refer to the August 8, 2002 GT new alert at http://www.gtlaw.com/practices/immigration/news/2002/08/06.htm.

The increased vigilance in generating no-match letters is likely to drive undocumented workers underground at the very time that our need to enhance national security highlights the importance of maintaining accurate records of foreign nationals in our country.

When the SSA reviews W-2 forms and credits social security earnings to workers, if a name or a Social Security Number (SSN) on a W-2 form does not match SSA records, the Social Security earnings go into a suspense file while the SSA works to resolve discrepancies. In recent years, the SSA has deposited $280 billion dollars in the earnings suspense file as a result of the cumulative effect of these no-matches.

In the past, only employers who reported SSNs that did not match at least 10% of their employees received the no-match letter. Starting in 2002, the SSA changed its criteria. An employer now receives a letter even if only one employee’s SSN does not match the SSA’s records. This change in practice has resulted in the SSA issuing 800,000 letters, the equivalent of 1 in 8 employers receiving these letters. Roughly 7 million workers have been included on these letters. 

The letters provide a list of the names and SSNs of all employees whose records do not match and requests corrected information within 60 days. While the letter specifically instructs employers that the letter, in and of itself, does not provide a basis for taking adverse action against an employee and is not a statement about the employee’s immigration status, many employers remain confused and immediately fire individuals on the list. Reactions to these letters have been varied, ranging from employees being terminated immediately if their name appears on the no-match list, being given a limited timeframe in which to correct the inconsistent information, to quitting if they cannot correct the information.

The SSA does not have any power to enforce its request for corrected information, however the SSA is required by law to provide the IRS with information on no-match W-2 forms. The IRS, in turn, is authorized by regulation to fine employers $50 for each incorrectly reported social security number. There are reports that the agency will begin fining employers for infractions that take place in 2002 and issuing the fines as early as 2004 once it develops a program for imposing penalties. It is not yet clear if the agency will be able to meet this timeframe.

Current regulations do provide waivers from penalties if the employer acts in a responsible manner and if the events of noncompliance are beyond the employer’s control. Current interpretation of the regulations by IRS representatives appear to carve out a number of safe harbors for employers including:

• If less than ½ of 1% or less than 10 of the W-2 forms issued by a single employer do not match SSA records, the IRS will not assess penalties against the employer.

• The IRS will not fine an employer for incorrect information on the W-2 forms if they are based on a duly executed W-4 form and the employer has shown due diligence in trying to obtain the correct information. Due diligence may be shown if the employer solicits correct information from the employee by requesting that he fill out a new W-4 form. Documentation kept in the employer’s files of this solicitation should insulate the employer from liability even if the employee doesn’t provide the correct information. If the employer does not receive the corrected information from a particular employee, he must re-solicit the information in each succeeding tax year until he receives the correct information.

It is unclear how these safe harbors will change once the IRS develops its new penalty plan and the internet basis Social Security Number Verification System (SSNVS).

SSNVS is an Internet based system that enables employers to verify that an employee’s social security number is correct. The system is in the testing stages and has been implemented as a pilot program for a small group of employers. While the IRS is not requiring that employers use this system, use of the system will be considered within the context of due diligence. An IRS representative has indicated that discontinued use of the system could be a factor in determining that the employer has not satisfied the threshold of due diligence.

There are many concerns regarding the use of the system including:

• Safeguarding employee information from unauthorized verifications.
• Prohibiting employers from targeting select groups for greater scrutiny.
• Compliance with anti-discrimination provisions of the Immigration Reform and Control Act of 1986 (IRCA).

According to SSA and IRS representatives, neither agency is currently sharing detailed information with the INS. The only information that the SSA shares with the INS is information relevant to investigations between the two agencies and an annual review, required by law, of earnings reported for Social Security numbers that were assigned for purposes other than employment.

The SSA may also be considering a program whereby it would share more information with the INS and possibly grant the INS authority to issue social security numbers (much like a hospital’s authority to issue a social security card to new born infants). While the IRS indicates that it does not share any information on no-match letters with any agency, new IRS programs currently under development would include meetings with the INS.

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