It’s been popping up on the Internet—the Social Security Administration (SSA) has resumed sending employers letters regarding mismatches of employees’ names and Social Security numbers (SSNs). Since employee name/SSN matches are critical to payroll administration, you’re right to be concerned. But there seems to be some confusion over these letters.
The SSA used to send two no-match letters.
• Employer no-match letters were issued to employers that submitted W-2 reports containing more than 10 W-2s that the SSA couldn’t process and on which name/SSN mismatches represented more than 0.5% of the total forms submitted. Those employers also risked tax penalties for filing incorrect W-2 forms.
Employer no-match letters were an integral part of immigration regulations that were issued in the late 2000s. However, as soon as final regs were released, they were challenged in court. As a result, the SSA stopped issuing these letters. The final regs never went into effect.
• Employee no-match letters, called Decentralized Correspondence (DECOR) notices, generally are sent to employees. However, the SSA sends them to employers when it doesn’t have valid mailing addresses for employees. DECOR notices are crucial to the SSA’s ability to credit employees’ earnings to their benefits accounts. Based on Internet postings, these are the notices that have raised concerns.
Decoding DECOR discrepancies
DECOR notices aren’t as sinister as they appear to be. Employee name/SSN mismatches can occur for myriad reasons. Most common: Female employees get married or divorced, but never change their names with the SSA.
Advice: For mismatches not involving marital status, eliminate the possibility that you made a mistake when entering employees’ data into your system by asking to see their Social Security cards again. If you were right, tell them to visit an SSA office to clear up the discrepancy.
Regardless of how mismatches arise, it’s crucial to follow up with employees. If they can’t square up everything with the SSA, termination may be an option. Red flag: Before you fire, be sure to have a company policy that sets out the (reasonable) length of time you’re willing to wait for employees to resolve their issues, and that termination may result. Employees, of course, should be aware of the policy before adverse action is taken.
Other key payroll steps
The DECOR notices tell employers that they need not respond to them. Even so, you shouldn’t ignore them, since you could still be penalized for filing incorrect W-2s. You may rely in good faith on the SSNs employees record on their initial W-4s, but your good faith goes out the door if you know that those SSNs are incorrect. In that case, the IRS says, you will avoid W-2 penalties by performing a due diligence. What diligence is due: You may be required to make up to two annual solicitations for the correct SSNs by requesting that employees complete new W-4s.
If employees continue to provide incorrect SSNs on those W-4s, you’re off the hook for W-2 penalties, but not for withholding. If the SSNs aren’t corrected, you’re probably on safe ground if you consider those W-4s to be invalid. Reminder: You must withhold based on old W-4s you know to be valid, or at the single/zero rate until employees provide you with valid forms.
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