The following article is the second in our series on Social Security and Immigration.

No-Match Letters

Every year, the SSA processes W-2 forms and credits social security earnings to workers. However, if a name or social security number does not match the SSA records, the agency frequently issues a no-match letter to the employer and employee in an attempt to obtain corrected information. Recently, the SSA has not been able to match employee information for 6-7 million workers a year. The social security earnings for these individuals go into a suspense file until the SSA can resolve the discrepancies. Presently, $280 billion dollars are stored in the earnings suspense file.

The Social Security Administration (SSA) has redesigned the system in 2003 for issuance of “no-match” letters in an attempt to correct problems faced in previous years. In order to reduce the volume of letters sent, the SSA will only send no-match letters to employers with more than 10 employees with mismatched information or for whom mismatched employees represented ½ of 1 percent of the W-2 forms filed with the SSA. With this system, the SSA plans to only send out about 130,000 letters, as opposed to the overwhelming 900,000 that were sent out in 2002. Also, the SSA will send a no-match letter to all no-match employees about two to three weeks before sending the no-match letter to the employer as long as there is a valid address for the employee.

Within the letter, there will be no more language that may be construed as threatening, stating that the employer will possibly be subject to an IRS penalty. This language led to many problems in previous years. Scared employers immediately fired no-match employees upon receiving the letters, some employees were given a limited time frame to correct the problems, and some no-match employees simply quit. The present letter states that the employer is given 60 days to correct the discrepancy and is advised that taking adverse action against an employee could violate state and federal law, subjecting the employer to legal consequences. In addition, this year’s letter clearly states that it is not a statement about the employee’s immigration status.

While the IRS is authorized to fine employees $50 for each incorrectly reported social security number, the agency has been waiting to begin enforcement until it develops a program for imposing penalties. The IRS had planned to begin issuing fines for 2002 in 2004, but recent reports indicate that the agency may delay this process another year. Presently, the regulations carve out safe harbors for some employers. The following categories will not be subject to fines:     

·         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.