Regardless of your company’s business classification, all companies are required to report employment compensation, tax withholding and other information on both quarterly and annual bases to the Internal Revenue Service (“IRS”). Sometimes through clerical error, and sometimes by conduct of an employee, the name and social security number fail to match the records of either or both the IRS and Social Security Administration (“SSA”). In such an event, an employer is required to take steps to confirm and correct the information obtained from the employee which was initially reported to the taxing authorities. Unless reasonable cause exists which excuses the error, an employer may be penalized by the taxing authorities on account of the mismatching information. The following information may be helpful to you in resolving the situation and avoiding the imposition of such a penalty.

SOCIAL SECURITY ADMINISTRATION:
According to the Social Security Administration an employer should take the following steps upon a failed verification of a social security number or receipt of notice from the SSA.

Current Employees:
1. Compare the failed social security number to your employment records to see if the employer made a typographical error. If this is found to be the case, the employer should resubmit Form W-2c with the correct data.

2. If the employment records match what was submitted, the employer should then contact the employee and request that the employee check his/her social security card and inform the employer of any name or social security number differences between the employer’s records and his/her card. If the employment records are incorrect, an employer should correct its records (by obtaining a new Form W-4) and resubmitting the corrected data.

3. If the employment records and the name and social security number shown on the social security card match, the employer should ask the employee to check with his/her local Social Security Office to determine and resolve the issue. Once the employee has visited the local Social Security Office, the employee should inform the employer of any changes. The employer should then correct its records accordingly and resubmit the corrected data.

4. If the employee is unable to provide a valid social security number, the employer should document its efforts to obtain corrected information. The employer should retain this documentation for a period of three (3) years.

Former Employees:
1. If the employee no longer works for the employer, the employer still has an obligation to attempt to get the correct information from the employee and send the corrected information to the SSA on Form W-2c. If the employer is unable to contact the former employee, the employer should document the efforts taken.

A mismatched social security number is not a basis, by itself, for an employer to take any adverse action against an employee, such as laying off, suspending, firing or discriminating. The notice received from the SSA does not imply that an employee intentionally gave incorrect information, nor does the notice call into question an employee’s immigration status. It seems clear that as long as an employer is documenting the efforts it has taken to correct any social security number issues, the employer is within the regulations and cannot be penalized.

IRS COMPLIANCE:
Along with receiving notice from Social Security, an employer may receive a penalty notice from the Internal Revenue Service. If an employer receives a penalty notice based on a failure to include the correct social security number on the Form W-2, the employer may seek a waiver of the penalty based on the failure of the employee to provide the correct information. The employer seeking such a waiver must establish that the employer acted in a responsible manner and took steps to avoid the failure. In order to establish that such action was taken, the employer must show that it made an initial solicitation for the employee’s correct social security number at the time the employee began work, and that the employer used the number the employee provided.

An employer has an obligation to ask for IRS Form W-4, Employee’s Withholding Allowance Certificate, from a new employee. Since the employee is required to furnish Form W-4 to the employer upon commencement of employment, Form W-4 may be used for the initial solicitation of the employee’s social security number. An employer who retains the Form W-4 in its records will be able to document that an initial solicitation of the social security number was made, constituting the proof that the employer acted in a responsible manner.

Once an employer proves that an initial solicitation was made, the employer must also show that, after receiving the IRS notice, the employer made another solicitation for the correct social security number. This solicitation must be made by December 31 of the year in which the penalty notice was received. Solicitations may be made by mail, telephone, electronically or in person. After making a solicitation, the employer should retain the response from the employee or note the response from the employee in the employer’s records. The employer should note that a solicitation was made even if no response was received from the employee. If another IRS notice is received in a subsequent year, a second solicitation is required. If the employer receives further IRS notices based upon a missing or incorrect social security number of the employee after having made two solicitations, the employer is not required to make further solicitations. The employer’s initial and two subsequent solicitations demonstrate that the employer acted in a responsible manner before and after the failure and will establish reasonable cause for waiver of the penalty.

As in the case of Social Security notices, an employer is not allowed, and should not use, the receipt of an IRS notice as grounds for termination of an employee. According to the IRS, employers should establish programs and processes for securing Forms W-4 and using the information provided in preparing Forms W-2. Also, employers should have a process in place for re-solicitation of the required information upon receipt of a penalty notice. Finally, employers should remind their workers to report any name changes due to marriage, divorce, etc., to both the Social Security Administration and to the employer.

SOCIAL SECURITY NUMBER VERIFICATION:
As a useful tool for employers, the Social Security Administration has set up a social security number employee verification system, known as SSNVS. SSNVS verifies employees’ names and social security numbers, though there is no federal tax requirement to do so. SSNVS is a useful, optional way for employers to identify potential discrepancies and correct social security numbers before receiving notices. An employer may not use SSNVS to verify someone’s name and social security number until after the employer has offered the individual a job. The Social Security Administration offers employers four methods for verifying employee social security numbers:

1. The internet: This method allows employers to verify up to ten (10) names and numbers online and receive immediate results. The website address is www.socialsecurity.gov/employer;

2. Telephone: An employee may verify up to five (5) names and numbers by calling 1-800-772-6270;

3. Paper: For larger verification requests, an employer can verify up to 300 names and numbers by submitting a paper request to Wilkes-Barre Data Operation Center, Social Security Administration, Data Operations Center, Salinas, CA 93911 for Missouri, or for Illinois, to Wilkes-Barre Data Operation Center, Social Security Administration, Data Operations Center, Albuquerque, NM 87180; or

4. Magnetic media: This procedure allows an employer to verify between 51 and 250,000 names and numbers by submitting magnetic tape or diskette to the Social Security Administration.

To assist employers in their documentation, the Social Security Administration has provided the following sample letters for employers to give to their employees:

We verified the following information with the Social Security Administration on ___________________, 200_.

Name:_______________________

SSN:________________________

According to the Social Security Administration, the reported information does not match the Social Security Administration’s records. You should:

-Check to see if the reported information matches the name and social security number on your social security card. If it does not match, please provide us with the correct information.

-If the information above matches your card, please check with any local Social Security Administration Office to determine and resolve the issue. Once you have visited the office, please inform us of any changes. Go to www.socialsecurity.gov or call 1-800-772-1213 to find the office nearest you.

NOTE: This notice does not imply that you intentionally provided incorrect information about your name or social security number.

Or

The Social Security Administration has issued us a notice concerning the following information.

Name:_______________________

SSN:________________________

According to the Social Security Administration, the reported information does not match the Social Security Administration’s records. You should:

-Check to see if the reported information matches the name and social security number on your social security card. If it does not match, please provide us with the correct information.

-If the information above matches your card, please check with any local Social Security Administration Office to determine and resolve the issue. Once you have visited the office, please inform us of any changes. Go to www.socialsecurity.gov or call 1-800-772-1213 to find the office nearest you.

NOTE: This notice does not imply that you intentionally provided incorrect information about your name or social security number.

Conclusion

In order for an employer to avoid legal problems with mismatched social security numbers, the employer should verify that no typographical errors occurred when the information from the Form W-4 completed by the employee was transferred to the employer’s Form W-2. If an error was made, make the appropriate corrections and send a Form W-2c to the IRS with the corrected information. If it is verified that no typographical errors occurred, the employer should contact all questioned employees and former employees, in writing, requesting that the employee verify that the information provided to the employer by the employee matches the employee’s social security card. An IRS Form W-9 may be used for this purpose.

If the employee gives the employer corrected information, the employer should fill out and file a Form W-2c with the IRS. If the previous information provided by the employee is correct, the employer should then, again in writing, request the employee contact his/her local Social Security Administration office to resolve the issue. All of the documentation concerning the employer’s efforts to obtain correct information should be kept for a period of three (3) years in the employee’s personnel files, though we recommend that such documentation be kept for not less than four (4) years, following the year of the employee’s termination from employment.