Nobody wants to hear from the IRS, especially business owners. But missing or incorrect SSNs can trigger unwanted notifications.
Most employers try to be diligent about ensuring the accuracy and validity of their employee's personal data, especially items such as names, birth-dates and social security numbers. But mistakes can happen and, unfortunately, so can intentional fraudulent actions on the part of some employees.
Burden of Proof Falls on Employers
When does this scenario typically happen? It can depend on the process involved and the type of industry involved. For example, this data is required by the IRS when employers file ACA notices with the IRS. According to a post at FisherPhillips.com,
A number of employers have reported troublesome Social Security Number (SSN) issues cropping up when filing Affordable Care Act (ACA) notices with the IRS. Many have received “AIRTN500” error messages, which indicate incorrect SSNs or Taxpayer Identification Numbers (TINs). Employers are often confused in these situations, especially if they have been submitting W-2s to the IRS and the Social Security Administration (SSA) on the employee’s behalf for years without problems.
Another common scenario involving missing or incorrect SSNs occurs in the agricultural industry. A paper from the Farm Employers Labor Service (FELS) notes that,
For more than five years, many agricultural employers have received a disturbing letter from the
Social Security Administration (SSA). The letter notifies employers that they reported on their
Internal Revenue Service (IRS) Forms W-2, Wage and Tax Statement, Social Security Numbers
(SSNs) and/or employee names that do not match SSA records.
An employer receives this letter, known as "Code V" or EDCOR, when they report more than 10 “no-match” SSNs and names that represent more than 0.5% of the Forms W-2 in the employer’s report.
While these examples do not trigger the same response from the IRS, the end result can be the same: fines and penalties levied against employers. In the first instance, the IRS can assess penalties of as much as $260 per incorrect or incomplete Form 1095-C. In the second example, the IRS can charge employers with a $50 penalty for each time they provide an incorrect SSN on a wage report. And the IRS can impose the penalty unless the employer can show reasonable cause for failing to provide the correct information.
A Brief History of SSA's Educational Correspondence (EDCOR) Letters
The Social Security Administration states that their “Employer Correction Request” letters, also known as EDCOR letters or “no match” letters, are sent to inform employers that either a name or SSN they reported, or multiple names or SSNs reported, do not match their records and to submit corrected information.
- We mailed EDCOR "Code V" letters for tax year (TY) 1993 (calendar year 1994) through TY 2005.
- We sent employers the EDCOR letters when they submitted their wage reports with more than a certain number of employee names and SSNs that we could not match to our records. (The exact criteria for sending these notices varied over the years).
- In TY 2006, we stopped sending the letters due to litigation concerning a proposed Department of Homeland Security (DHS) regulation.
- In 2011, the Commissioner formally discontinued sending EDCOR notices.
- In 2018, SSA decided to resume sending an updated version of the EDCOR letter to employers who submitted one or more names or SSNs that did not match our records. As a result, we mailed informational letters to employers and third party providers.
- As of 2019, SSA has resumed mailing EDCOR letters.
What Business Owners Can Do
Initially, when a missing or mis-matched SSN is received, the business owner is responsible for the error and for the correction of that error. The IRS Pub. 1586 points out that,
“Employers have a responsibility to file correct information on their employees’ Forms W-2. Failure to do so may result in a penalty of $50 per incorrect Form W-2. However, the penalty will not apply to any failure that an employer can show was due to reasonable cause and not to willful neglect. Generally, employers want to demonstrate that the failure to provide correct information was due to an event beyond their control or that there were significant mitigating factors. They also want to demonstrate that they acted in a responsible manner and took steps to avoid the failure."
If the issue involves missing SSNs and the employer properly requested these, there are steps that follow,
“If an employer receives a penalty notice based on a failure to include the employee’s social security number (SSN) on the Form W-2, and seeks a waiver of the penalty based on the failure
of the employee to provide the SSN, special requirements apply for establishing that the
employer acted in a responsible manner. The employer must show that it made an initial
solicitation for the employee’s SSN at the time the employee began work - in person, or by mail
or telephone. The employer must have also made an annual solicitation for the employee’s SSN
during the same calendar year (or by January 31 of the following year for employees who began
work during the preceding December)."
The publication instructions add that, if the employers still do not receive an social security number from the employee or employees, that they must make a second annual solicitation by December 31 of the year following the calendar year in which the employee or employees began work with them.
A similar sequence of actions is required in the case of incorrect or mis-matched SSNs,
“If an employer receives a penalty notice based on a failure to include the correct SSN on the Form W-2, and seeks a waiver of the penalty based on the failure of the employee to provide the correct SSN, the special requirements for establishing that the employer acted in a responsible manner are slightly different than in the case of a missing SSN. The employer must show that it made the initial solicitation for the employee’s correct SSN at the time the employee began work, and that it used the number the employee provided. No additional solicitations for the SSN are required unless the IRS sends a penalty notice to the employer notifying it that the employee’s SSN is incorrect. Following receipt of an IRS notice, the employer is required under the regulations to make an annual solicitation for the correct SSN."
All employers, regardless of the industry they work in, have a requirement to ask for and obtain, if possible, an employee’s social security number at the time the employee begins working for them. Since the employee is required to furnish Form W-4 to the employer when they begin working, the Form W-4 may be used for the initial solicitation of the employee’s SSN. In addition, the Social Security Administration’s (SSA)
Employee Verification System (EVS) is a useful tool for employers and may alert them to potential penalty situations.
Probably the most important action an employer can take for establishing reasonable cause in connection with Form W-2 penalty provisions is the solicitation of the employee’s correct SSN on the Form W-4 and ensuring that the number is on the Form W-2.
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