The "Mismatch Letter" Is in the Mail: The Social Security Administration Ramps Up Its Warnings to Employers (Part I)
The Social Security Administration ("SSA") recently announced a change in its policies for issuing letters to certain U.S. employers and employees informing them of "mismatches" in data reported to the agency. As a result of the policy change, employers may be required to revisit their I-9 (Employment Eligibility Verification) compliance procedures and, upon conducting an internal audit, may find that some of their workers lack employment authorization under the immigration laws. SSA will soon send a significantly larger number of "mismatch" letters, as they are informally described, to employers throughout the country. Under the new policy, U.S. employers will receive SSA mismatch letters if the employer sends one or more Forms W-2 that contain data related to the worker's name or social security number that does not match SSA records.
SSA mismatch letters often create some level of confusion and concern for employers because of potentially conflicting federal wage reporting and U.S. immigration law obligations. In light of employers' heightened concerns regarding the status of foreign workers in the aftermath of September 11, the upcoming round of SSA mismatch letters will likely generate increasing levels of confusion and concern regarding employment eligibility verification. When employers comply with the suggested action in the SSA mismatch letter and during the process learn that one or more of their employees may not be authorized to work in the United States, immigration lawyers are frequently consulted for advice regarding the immigration consequences of continuing to employ or terminating the workers. This article will review the policy change, briefly address pertinent immigration-related legal issues, and offer practical suggestions.1
SSA Reporting Requirements
Under the Social Security program, workers in the United States are entitled to benefits based on the number of Social Security credits they have earned while working in jobs covered by Social Security. To qualify for most social security benefits, workers must first acquire a certain number of credits (also called quarters of coverage) from earnings in covered employment. Because the Social Security laws require SSA to maintain records of wage amounts that employers report having paid to individuals, in 1936 SSA created social security numbers ("SSNs") as a means of maintaining individual earnings records and issued cards to workers as records of their SSNs. SSA uses the SSN to identify applicants' personal earnings records, which contain information that the agency uses to compute benefits payable to beneficiaries.2
Each year, employers must send Copy A of Internal Revenue Service ("IRS") Form W- 2, Wage and Tax Statement, to the SSA by the last day of February (or last day of March if the employer files electronically) to report the wages and taxes of employees for the previous calendar year. When SSA receives the W-2 data, it frequently is not able to post the earnings to a particular worker's SSA account because of discrepancies involving the worker's name and the SSN, or because SSA never issued the SSN. If SSA can not make a match with a high degree of reliability, using sophisticated computer tools, the worker's earnings can not be posted, and the worker does not receive the credit she or he worked for and deserves. When SSA is not able to post the earnings, it places the earnings in a "suspense" account, an accounting procedure whereby SSA holds the reported earnings in a location that is not associated with any worker.
SSA Suspense Accounts
U.S. employers submit a significant number Forms W-2 to SSA with data that can not be matched to SSA records. In 1999, approximately 6.5 million U.S. employers submitted approximately 216 million W-2s to SSA on annual wage reports. Approximately 88 percent (5.72 million employers) of those employers submitted wage items with no errors. Another 9 percent (585,000 employers) submitted wage items with one to five errors. Only about three percent of employers (or about 195,000 employers) reported six or more errors, and of those, only about 3,000 reported 200 or more errors. In total, SSA is unable to post approximately five million wage items to individuals' earnings records for any given year.3
SSA is interested in avoiding payments into suspense accounts because these accounts affect SSA's operating costs. SSA estimates that it costs less than 50 cents to post a correctly submitted wage item to an individual's earnings record, but it costs an average of $300 to correct an item once it is in a suspense account. Between 1937 and April 1999, SSA estimates that it posted approximately 212 million items to its suspense accounts, with a total value of approximately $262 billion; since 1990, the total value of suspended wage items has been increasing an average of $5 million annually over this period.4
Employers should also be interested in avoiding payments into suspense accounts because the Internal Revenue Code ("IRC") provides for fines of $50 per violation when an employer fails to submit an employee's correct SSN on a wage report.5 In addition, employers and immigration law practitioners have speculated that SSA reports the names and other information related to SSN mismatches to the INS and that INS uses this information for enforcement purposes. SSA has generally denied this practice, although an SSA representative has confirmed one exception: SSA reports to INS instances where an employee's W-2 contains an Individual Taxpayer Identification Number ("ITIN"), which always begin with the number nine, instead of a SSN.6 Because ITINs are only issued to individuals who do not have employment authorization in the United States, when employers reporting wages to SSN with an employee's ITIN, this is strong evidence of unauthorized work status. In addition, privacy and disclosure limitations related to SSN data do not prevent SSA from sharing ITIN information.
On the other hand, there is no guarantee that SSA will not share data regarding worker name mismatches with INS in the future, and currently SSA is participating in "outreach programs" with INS in an attempt to target, train, educate and inform "problem" industries and States on annual wage report filing requirements.7 In addition, SSA has indicated that intends to work more closely with IRS to facilitate enforcement of the penalties under the IRC mentioned above.8
SSA Mismatch Letters
In an effort to reduce the rate of wage records that can not be matched to SSA name and SSN records, SSA began in 1993 sending letters to certain employers notifying them that the agency is unable to post earnings because of a mismatch between the reported SSN and the worker's name. These letters, which contain a "Code V" at the top and are referred to as a form of "edcor" (educational correspondence), instruct employers on the possible reasons why the W-2 reports do not match SSA's database, and provide detailed instructions on correcting the discrepant information.9 In addition, the letters contain an attachment that lists the social security numbers of all employees whose accounts have gone into suspense based on the W-2. The letters also caution employers not to take adverse action against employees whose social security numbers appear on the attachment and suggest that employers verify names and SSNs at the time of hiring. In addition, SSA sends letters to certain employees whose earnings can not be posted to an SSN account because of a mismatch, using the address the employer showed on the W-2.
In the past, SSA sent Code V letters to employers with a 10% or greater mismatch rate; in other words, before SSA changed its policy the agency sent Code V letters when a U.S. employer's annual wage report included mismatches between employee names or SSNs and SSA records for 10% or more of the employer's employees. Recently, however, the SSA announced a change in its policy on the threshold criteria for issuing Code V edcor letters to U.S. employers.10 Beginning with SSA's processing of 2002 W-2 reports, SSA will send Code V letters to employers whose W-2 data includes one or more mismatch with SSA data. As a result, many employers who previously filed annual W-2 wage reports with a mismatch rate of less than 10% will likely receive their first SSA Code V edcor letter sometime this Spring or Summer if the report contains one or more mismatches.
Copyright © 2002 Paparelli & Partners LLP. Published with permission. All rights reserved.
1 This article is not intended as legal advice, nor should it be relied upon as such. For legal advice in a given factual situation, the reader is cautioned to retain the services of competent professionals in the immigration, tax, and employment law fields.
2 Report to the Chairman, Subcommittee on Social Security, Committee on Ways and Means, House of Representatives. Social Security - Government And Commercial Use Of The Social Security Number Is Widespread (GAO/HEHS-99-28, Feb., 1999).
3 Office Of The Inspector General, Social Security Administration, The Social Security Administration's Earnings Suspense File Tactical Plan And Efforts To Reduce The File's Growth And Size (Feb., 2000 A- 03- 97- 31003 Evaluation Report).
5 26 U.S.C. §6674; 26 CFR § 31.6011(b)-2. The maximum penalty is $250,000 per year, or $100,000 for small businesses. A number of exceptions exist to this penalty provision, including for failures due to reasonable cause and not to willful neglect. According to the Form W-2 instructions, "you must be able to show that your failure was due to an event beyond your control or due to significant mitigating factors. You must also be able to show that you acted in a responsible manner and took steps to avoid the failure."
6 This information is based on correspondence between the author and SSA's Employer Services Liaison Officer in San Francisco, Mr. Bill Brees.
7 Office Of The Inspector General report, supra note 2.
9 SSA's website also lists tips on using correct names and SSNs in the correct format to ensure employees get credit for their earnings. http://www.ssa.gov/employer/critical.htm
About The Author
J. Ira Burkemper is a partner in the business immigration law firm of Paparelli & Partners LLP in Orange County. His immigration practice involves business and professional visas; labor certifications; immigrant visas; consular representation in nonimmigrant visa applications; compliance with employment eligibility verification (I-9) requirements; and citizenship matters for foreign executives, managers, and professionals. He received his J.D. from the University of Southern California in 1994 and has a business degree (Master of International Management) that he received from Thunderbird (the American Graduate School of International Management) in 1985. Mr. Burkemper can be reached at firstname.lastname@example.org.