- How to Respond When ACA Electronic Reporting Triggers Notification of an Incorrect TIN
- September 28, 2016 | Authors: Maria Fernanda Gandarez; Matthew J. Kolodziej; Bernhard Mueller
- Law Firms: Ogletree, Deakins, Nash, Smoak & Stewart, P.C. - New York Office ; Ogletree, Deakins, Nash, Smoak & Stewart, P.C. - Columbia Office
- The Affordable Care Act’s (ACA) electronic reporting requirements for larger companies may inadvertently notify employers of employees using incorrect Social Security numbers. The ACA requires certain large employers with 50 or more employees to offer qualified healthcare plans to employees or risk paying fines. Employers can report employee insurance coverage with Form 1095-C. In the 2015 tax year, it became mandatory for employers that submit 250 or more Forms 1095-C to do so electronically. The electronic reporting system also automatically checks the employee’s name and Taxpayer Identification Number (TIN), which is almost always his or her Social Security number, against government databases, flagging any mismatches. A mismatch will then generate a notification for the employer. Employers should prepare for mismatch notifications and take care not to run afoul of discrimination laws. Importantly, employers should not automatically assume that the employees whose information generates mismatches are not authorized to work in the United States.
Currently there is no universal, mandatory electronic system to check employees’ Social Security numbers or employment authorization. E-Verify was originally established in 1997 to provide an electronic system for employment authorization verification but is only mandated in limited situations, such as when participation is required under state law or federal contracts. E-Verify also involves risk to employers, as it imposes direct, real-time government surveillance of the I-9 process, including instant Social Security number error notification. However, ACA reporting requirements raise similar issues as an employer must provide a TIN, which is almost always a Social Security number, for each employee on Forms 1095-C. If the employee’s name and TIN do not match U.S. Social Security Administration records, the Internal Revenue Service (IRS) will issue an error message. If a TIN and name do not match, the error code the IRS provides is “AIRTN500.” As with E-Verify, there are various possible causes of this error, including name changes, spelling and formatting variations, and data entry errors in addition to lack of employment authorization.
If an employer receives a no-match error upon submission of a Form 1095-C, it is important to follow the IRS’s guidelines and take reasonable measures to solicit correct information from the affected employee so that the employer does not inadvertently trigger immigration-related discrimination claims. The ACA’s electronic reporting system is not an employment authorization verification system, and an employer should not rely on the IRS error notification alone as grounds to discharge the employee or require the employee to produce specific documents, such as a social security card, to confirm his or her employment authorization. The U.S. Department of Justice has stated that a Social Security no-match notification alone is not sufficient to establish that an employer has either affirmative knowledge or “constructive knowledge” that the employee is not authorized to work in the United States, and requiring additional documentation may be cause for discrimination claims. While an employer may not knowingly employ an individual who is not authorized to work in the United States, many different combinations of documents can demonstrate employment authorization, and employers are not allowed to require specific documents or require more documents from some employees than others. Such specific or unequal requirements may be considered “document abuse,” a form of immigration-related discrimination.
In the case that an employer is notified of an incorrect employee TIN and/or name, the IRS has established procedures for soliciting correct TIN information from the employee. The IRS does not require that the mismatch be corrected within a specific timeframe. However, this does not give an employer the option to completely disregard the IRS notice all together. If the employer shows that it has solicited the TIN information according to IRS procedure, this may establish eligibility for a “reasonable cause waiver” of IRS penalties for incorrect reporting, as described in IRS Publication 1586 (Rev. 2-2016). If the affected employee, during the attempt to correct the IRS mismatch issue, admits to having provided false information at the time of hire, the employer can apply its honesty policy, if it has one, to impose appropriate disciplinary measures, unless state laws, such as those in California, limit the employer’s options in that context. Further, if the employee provided a Social Security card at the time of hire to confirm his or her employment authorization and later states that the Social Security number on that card is incorrect, the employer may ask the individual to undergo I-9 reverification by presenting an acceptable List A or List C document to confirm his or her employment authorization. Again, the employer should not demand to see a particular document-such as a new Social Security card-as that might run afoul of the antidiscrimination rules surrounding the I-9 verification process.
This year, the IRS has stated that it will be more lenient and generous with waiving penalties for incorrect reporting if employers make reasonable efforts to follow their guidance regarding solicitation of correct TIN information. Larger employers subject to ACA reporting requirements should make reasonable efforts to provide accurate TIN information, and may want to implement or review their plans to ensure that they follow IRS guidelines and do not run afoul of discrimination laws in the case of a TIN error notification.