The Social Security Administration is notifying 750,000 employers this year that employee social security numbers do not match SSA records. (Only 110,000 employers were notified last year.) This notification brings I-9 compliance into play, if the employee has provided a social security card to satisfy Form I-9 at the time of hire. Though the SSA purportedly does not report this information to the Immigration and Naturalization Service, an employer who receives a "no match" letter should proceed carefully. Employers are encountering a delicate balance between I-9 compliance, social security compliance, and avoidance of lawsuits alleging wrongful discharge or national origin discrimination. I-9 and Social Security issues frequently overlap. However, they must be analyzed and handled separately in order to avoid claims of wrongful termination and/or national origin discrimination. Of course, for any employee who does provide a new or corrected SSN, notify your payroll department so the company records are amended to reflect the new SSN for appropriate withholding and SSA reporting.

The I-9 Decision Tree

The following steps should be taken when a purportedly invalid, non-matching, or otherwise "defective" SSN for an employee. (For in-depth general guidance on I-9 compliance, see our "Employer’s I-9 Compliance Guide" publication. You can obtain a copy of this free of charge by contacting us a dwhite@constangy.com.)

Step 1
The "Essentiality" Test: Examine the employee’s I-9 Form to determine whether a social security card was used to complete the Form I-9.

1. If not, then the I-9 does not need to be revised and should be
   returned to the file drawer.
2. If an SS card was used, then determine whether it was "essential" to the I-9.
   1. It is essential if only one List B and one List C document was relied upon by the employer and the SS card was one of those documents and no List A document was provided.
   2. It is not essential if a List A document was provided.
      
   3. It is not essential if one List B and two or more List C
      documents were presented, so long as the List B and List C documents, without the SS card, satisfy I-9 requirements. In this case, the I-9 does not need to be revised and should be returned to the file drawer. You may, if you wish, notate the I-9 with the employee’s new SSN if one exists, but are not required to so. If you do notate, please follow carefully the notation procedures set out in bold print below at Step 2, section A .

• We realize that an employer who completes Form I-9 using more documents than the required minimum may be penalized for "over-documentation" violations. The previous examples are therefore given for purposes of clarification. (And we encounter many zealous employers who indeed "over document" the employee, creating some perilous but interesting decision tree resolutions.)
  
  

Step 2
If an "essential" SS card is found on the I-9, do the following:

Tell the employee that the SSA advises the company that the SSN given on the I-9 is not correct. Ask the employee to tell you the correct SSN.

1. If the employee acknowledges that the SSN on the I-9 is incorrect and provides a new SSN, then notate the I-9 as indicated below in bold print in this paragraph. (The employee is not required to show you the card.) If the employee presents an SS card, however, look at it to make sure that it appears genuine. If your company, as a policy, photocopies the SS card, then copy; otherwise, do not copy the SS card if the employee presents it. Notate the correct social security number by writing in pen onto the original I-9 Form and then enter signature and date beside the correction. Be certain not to erase, white out, or otherwise destroy or obliterate the original I-9. Instead, simply notate, date, and sign the original I-9 and then return it to the file drawer.
   
   
2. If the employee acknowledges that the SSN on the I-9 is incorrect, but provides no new SSN, then ask if the employee has any alternative document, other than a SS card, that is on the list of acceptable I-9 documents. If the employee does provide an alternative document that satisfies the I-9, then notate the original I-9 according to the procedure set forth in the bold print of the paragraph above. If the employee does not present an alternative document within three business days, then termination may be appropriate—but you should not terminate before confirming with company legal counsel.
   
   
3. If the employee provides a new SSN, but it is the same number as the one that is already on the I-9, then ask the employee for an alternative document, other than an SS card, that is on the list of acceptable I-9 documents. If the employee does provide an alternative document that satisfies the I-9, then notate the original I-9 according to the procedure set forth in the bold print of paragraph A above.
   
   If the employee does not present an alternative document within three business days, then you should respond in writing to the SSA, indicating that you have looked into the matter and that you are advised by the employee that the given SSN is indeed correct. You should request that the SSA verify its records to determine whether a computer error or other SSA mistake has occurred. If and when the SSA responds by indicating that the SSN is indeed invalid, then termination may be appropriate—but you should not terminate before confirming with company legal counsel.

The Social Security Decision Tree

Job applications, offer letters, and related documents should be revised to advise prospective employees that a valid SSN or such other information as required by the IRS regarding SSNs will be provided on the first day of work. Employers should advise job applicants that the SSN will be verified and that a SSN with a false name or number is grounds for termination.

In this section, dealing exclusively with Social Security compliance, we make several suggestions that are only proposed policies for the employer to implement uniformly, rather than actions required by the federal government. These policies include: (1) notifying all prospective employees that the employer will verify SSNs on or before the first day of work, and (2) uniformly subjecting employees to immediate termination if the SSA is unable to confirm the validity of the SSN. Both of these policies may be company policies, but are not required by law.

If your company already provides, as part of the application process, that false applications will result in dismissal, and the job application requests the applicant’s SSN, your existing policy may be broad enough to allow for termination if the SSN provided turns out to be false. Such a policy must, of course, be consistently applied to all employees and must be clear as to whether such information must merely be false or whether it must be knowingly false. If the standard is "knowingly false," greater care must be used in confirming the employee’s knowledge before termination is appropriate.

For tax reasons, an employer may require that valid SSNs be provided as a condition for employment or continuing employment. We set out below the steps to be taken for collecting SSN information. Remember, this is for tax purposes only and is unrelated to I-9 compliance.

Step 1 (On or before first day of employment)

New hire should be asked if has SSN.

If employee has SSN, should be asked to show card, if it is available. If card not available, employee should provide number and name appearing on card. Copy name and number exactly as they appear on the card. Use for all tax records.

If employee has no SSN, ask employee if SSN application has been filed.

If employee has applied for SSN, ask for application receipt and copy it.

If employee has not applied for SSN, have employee complete a social security statement (Exhibit A) and give an SS-5 to employee to complete and file with the SSA within seven days. Ask employee to provide a copy of the application when filed.

Step 2

If employee provides SSN: contact SSA at (800) 772-1213 to verify name and number. Record all information provided by SSA. If verified: Advise the employee, in writing, that the number has been verified, but that the employee must immediately notify the company of any future name and/or number changes. If not verified: Notify the employee, in writing, that SSA has not been able to confirm the validity of the employee’s SSN and provide any explanation received from SSA regarding validity. Ask employee to double check name and number provided. If, after such review, employee states that previous information is correct, have the employee verify name and number by making written statement that the name and number is correct. Alternatively, allow employee one day to produce the social security card or be terminated. If the card is produced, reverify with SSA.

Step 3

Give employee IRS Form W-4 on the first day of employment to be returned in three days or such other time frame provided by the payroll department. If SSN is missing and the application for the SSN is pending, "application pending" should be inserted by the employee.

Step 4

Verify that the SSN received in Step 1 is the same as the one that appears on the W-4. If not, then have the employee correct the form.

Step 5

Send W-4 to payroll department and coordinate with payroll department on any necessary follow-up.

Step 6

Maintain in the employee’s personnel file (not the I-9 file) a copy of the W-4 and all of the information obtained about the SSN.

Step 7

If the employee did not have a SSN as of the date of the hire, require the employee to keep the company informed of the status of the SSN application (SS-5 Form) and require the employee to provide the SSN immediately upon receipt.

Step 8

Establish a tickler file for follow-up on SSNs for employees without numbers. Follow up at weekly intervals until a copy of the application is provided by the employee and bi-weekly thereafter until the card is received.

Step 9

If the employee is terminated before the SSN has been received and verified, have the employee complete Exhibit A as part of the exit interview process, unless the SSN or the statement is already on file. Advise the employee, in writing, to send the number when received for proper crediting of tax payments.

ABOUT SOCIAL SECURITY COMPLIANCE

The Social Security Decision Tree that appears above is best utilized with an understanding of federal withholding law in the "no match" context.

No one can have more than one SSN at one time, although, under certain circumstances, a new number may be issued. A new card will be issued for name changes, but typically the number will remain the same. A new number may be issued for good reason, such as stolen identification. A valid SSN must have a total of nine digits. The first three digits are referred to as the area, the next two as the group, and the last four as the serial. No SSNs with a 000 area number, or an area number in the 800 or 900 series, have been issued. Also, no SSNs with a 00 group or 0000 serial number have been issued. While the first three digits once designated the state in which the card was initially issued, these numbers are now randomly issued, as are the last 4 digits.

Federal tax laws, administered by the IRS, require an employer to obtain from an employee a valid SSN. An employee’s SSN must be used on tax reports filed with the IRS by the employer (such as W-2) and be included on each Employee’s Withholding Allowance Certificate (IRS Form W-4) provided by the employee to the employer. The IRS may impose penalties on an employer who does not provide correct SSNs in its reports. For social security and income tax crediting purposes, incorrect or missing SSNs interfere with the crediting of payroll taxes withheld from employees and paid by the employer. The SSN is also widely used for state and local tax reports.

Federal tax law does not require that an employee have a SSN on the employee’s first day of work. However, if the employee has a SSN, the employee should provide it to the employer on that date. If the employee does not have a SSN as of the first day of work, the employee must, however, apply for a SSN within seven days or by his termination date, if sooner. (Treas. Reg. 31.6011(b)-2(a)(2))

Under IRS regulations, the following process has been established for obtaining the SSN from the employee:

• If the employee has the card available, the employee must show it to the employer.
• If the employee has a SSN but the card is not available, the employee must provide the number and the exact name as it appears on the card.
• If employee has received a receipt for an application for a SSN card that has not yet been received, the employee must show the receipt.
  

If the employee cannot meet the requirements of 1-3 (above), then the employee must furnish a written statement (Exhibit A) to the employer containing the following information:

• The employee’s full name, present address, date and place of birth.
• The employee’s father’s full name.
• The employee’s mother’s full maiden name.
• The employee’s sex.
• A statement as to whether the employee has filed an SS-5 (social security application). If so, the date and place of filing and a copy, if available, of the application must be provided. The statement must be dated and signed by the employee.
• If an SSN number is issued after employment starts, the employee must provide that number as soon as it is received-- even if received after the employment is terminated.
  

If, by the time W-2 returns are to be filed (usually by January 31 of the year following the year of hire), the employer has never received a SSN, SSA receipt, or an employee statement (Exhibit A), then the employer is required to attach to the employee’s W-2 a completed SS-5 Form signed by the employer. Effectively, under this step the employer is applying for a SSN for the employee. If the employer has the receipt, copy of the SS-5, or the Statement, then the employer should send it in with the W-2 Form.

The IRS requires that the name and number on the social security card be used on all records, returns, and statements for employees. It is therefore important that the information received be accurate from both an employee and employer’s perspective. The SSA has established an Enumeration Verification System (EVS) to allow employers to check employee name and number data against SSA records.

To verify up to five names/numbers simultaneously, call SSA at (800) 772-1213. More than five and fewer than fifty-one verifications can be made through the local Social Security office. More than fifty requests must be processed by the SSA Client Identification Branch [(410) 965-7140]. This requires registration with that Branch.

Personal income tax withholding is owed on all "wages" paid to an employee. (Internal Revenue Code § 3402.) The amount of taxes withheld is based on exemptions claimed by an employee on IRS Form W-4. Only an employee who last year was refunded all federal income taxes because no federal tax liability existed and who expects a refund of all this year’s federal income taxes is exempt from withholding for this year--and then only if the employee properly completes IRS Form W-4.

The Code expressly provides that "on or before the date of commencement of employment with an employer, the employee shall furnish the employer with a signed withholding exemption certificate relating to the number of withholding exemptions which he claims, which shall in no event exceed the number to which he is entitled." Code Section 3402(f)(2)(a).

A completed W-4 must include the employee’s SSN. Treasury Regulations provide that every individual to whom an account number (i.e., social security account number) has been assigned "…shall include such number on any withholding exemption certificate filed with an employer." Treas. Reg. 31.3402(f)(2)-1(d).

Treasury Regulations also provide that if an employer receives an invalid withholding exemption certificate, "…he shall consider it a nullity for the purposes of computing withholding; he shall inform the employee who has submitted the certificate that it is invalid and shall request another exemption certificate from the employee. If the employee who submitted the invalid certificate fails to comply with the employer’s request, the employer shall withhold from the employee as from a single person claiming no exemptions." Treas. Reg. 31.3402(f)(2)-1(e). In essence, until an employee provides a properly completed W-4, all wages will be subject to the maximum income tax withholding rate.

Dan White
Constangy, Brooks & Smith, LLC
230 Peachtree Street N.W.
Atlanta, Georgia 30303-1557
Tel: 404-525-8622
Fax: 404-525-6955
dwhite@constangy.com

EXHIBIT A
Social Security Number Statement

I do not have a social security number as required by Internal Revenue Service regulations. I am providing the following information as required by Treasury Regulation § 31.6011(b)-2(b)(iv):
Employee’s full (legal) name:
Employee’s present address:
Employee’s date and place of birth:
Father’s full name:
Mother’s full maiden name:
Employee’s sex:
I have/have not (circle one) applied for a social security number by filing Form SS-5 with the Social Security Administration on ________________ at _______________________________.
Date Place of filing (where sent or filed)
I can/cannot (circle one) provide a copy of Form SS-5 now. I understand that I need to apply for a number immediately and that I will provide the number to the company as soon as it is received.

Dated:

By:

Signature


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