- Social Security "Mismatch" Letter a Trap for the Unwary Employer
- August 19, 2003
- Law Firm: Fisher & Phillips LLP - Atlanta Office
Many of our clients are receiving letters from the Social Security Administration ("SSA") asserting that the employer's W-2 returns contain incorrect employee names or Social Security Numbers ("SSNs"). This so-called "mismatch" letter suggests a possible fine of $50, and some versions set a deadline for correction. In response to this letter, employers may ask workers for new documents and suspend or even terminate a worker who cannot produce a new Social Security card. This is a dangerous practice.
In past years, SSA sent out a mismatch letter only if 50 percent or more of the W-2s were incorrect. Now, however, the threshold has been lowered to 10%. Consequently, many more employers are receiving the mismatch letter. We are concerned that employers could lose valuable employees by following the SSA's letter too stringently.
The SSA letter is a little misleading. SSA lacks enforcement power and can only refer an employer to the Internal Revenue Service ("IRS") for an administrative proceeding. IRS can only impose the $50 penalty upon a determination of "willful neglect." The cost of the proceeding and the negative publicity may explain why IRS is generally not seeking to fine an employer who files a few incorrect W-2s. Moreover, there is a three-step procedure set forth in the regulations which completely insulates the employer from IRS penalties. That formula requires the employer to provide notice to the affected employee three times: once upon receipt of the SSA letter, again at the end of that tax year, and once more at the end of the next tax year. The notice need only advise the individual of the need to go to SSA to fix an apparent problem. An employer that follows this three-step notice procedure cannot be fined by IRS.
Although this may seem illogical, the SSA letter does not constitute notice that the worker is no longer authorized to work. In fact, the Immigration and Naturalization Service ("INS") issued an opinion letter specifically stating that receipt of the SSA letter is not grounds to reverify employment eligibility or suspect that a worker may be illegal. As a result, if you terminate workers or ask them to produce new documents you may be engaging in "document abuse" discrimination by requiring more documents than minimally required to comply with the I-9 rules. This interpretation was recently confirmed by the former Justice Department Special Counsel for Immigration-Related Unfair Employment Practices.
As a practical matter, the INS position ignores the reality of illegal employment and the ready availability of counterfeit documents. It is true that a small percentage of listed workers may have a true mismatch, e.g., because of a name change or a transposed number, but the vast majority of persons listed are probably using bogus SSNs to engage in unlawful employment. Nonetheless, since SSA has no enforcement power, IRS is unlikely to penalize an employer, and because of the bizarre interpretation by INS, an employer should avoid the risk of document abuse and not ask workers to do anything.
Instead, if you receive such a letter, you should simply notify affected employees of a possible problem and suggest that they go to the local SSA office. As a practical matter, this will also help avoid the situation where workers who could be employed without risk based upon "reasonably genuine" documents, disappear when asked to produce new documents.