IRS Position on Social Security Numbers
Risk of Payroll Audits
Does Anything Trump That Exception?
So, What to Do?
Final Potential Fly in the Ointment
IRS Position on Social Security Numbers Top of Page
Circular E, Employer's Tax Guide (Internal Revenue Service Publication 15) states the following regarding Social Security numbers:
"Name and social security number. Record each new employee's name and social security number from his or her social security card. Any employee without a social security card should apply for one."
Employee's Social Security Number (SSN)
"You must get each employee's name and SSN because you must enter them on Form W-2. (This requirement also applies to resident and non-resident alien employees.) You may ask your employee to show you his or her social security card. The employee is required to show the card if they have it available. If you do not provide the correct employee name and SSN on Form W-2, you may owe a penalty.
Any employee without a social security card can get one by completing Form SS-5, Application for a Social Security Card. You can get this form at Social Security Administration (SSA) offices or by calling 1-800-772-1213.
NOTE: Record the name and number of each employee exactly as they are shown on the employee's social security card. If the employee's name is not correct as shown on the card (for example, because of marriage or divorce) the employee should request a new card from the SSA. Continue to use the old name until the employee shows you the new social security card with the new name."
The penalty for incorrectly reporting social security numbers on W-2s is $50 for each incorrect social security number. In a large organization, incorrect reporting of social security numbers could lead to substantial penalties. The correct entry of new hire social security numbers is essential to protecting against incorrect numbers on W-2s, because W-2s are generated from payroll records.
When setting-up a new employee's payroll record, ensure accuracy by making a copy of the social security card and using that to enter the employee's name (exactly as shown on the card) and social security number. For example, you may hire an employee who calls himself Bud Jones. However, if the name on his social security card is Robert Stephen Jones, you should set up payroll records as Robert Stephen Jones, not Bud Jones. At work everyone may call him Bud, but his payroll records must reflect his legal name on record with the Social Security Administration.
To avoid errors, do not record the name and social security number from the application form or Basic Employee Data Sheets completed by the employee or a representative from your organization. On such forms, the name or social security number may not be properly recorded. Only record the name and social security number from a copy of the social security card."
Risk of Payroll Audits Top of Page
Because of the potential for fines ($50 for each W-2 with an incorrect social security number), it is wise to periodically audit your payroll records to ensure that Social Security numbers are correct. The Social Security Administration (SSA) provides assistance with SSN verification. You may request verification by phone, paper, magnetic tape (allow 30 days' response time), or online (immediate response available, depending upon your Internet connection, for up to ten names and SSNs, while larger lists of up to 250,000 names and SSNs can be uploaded in batch files and verified by the next business day). Up to five SSNs can be verified over the phone toll-free at 1-800-772-6270. Up to 50 SSNs can be verified via paper lists by contacting your local Social Security office. Full information about the SSN verification program is available on the SSA's Web site at https://www.ssa.gov/employer/ssnv.htm. In the absence of an Internet connection, employers can request information from SSA's headquarters by sending a letter to:
Social Security Administration
OSR OPR, DDSE, Client Identification Branch
3-H-16 Operations Building
6401 Security Blvd.
Baltimore, MD 21235
Fax: (410) 966-9439
Requests must include the following information:
Little-Known Exception Top of Page
As with almost everything affected by laws, there is an exception to the apparent iron-clad rule cited in the above guidance (without exceptions, how else would we keep lawyers off the streets?). Every once in a while, you may encounter a would-be employee who, for one reason or another, not only does not have a social security card, but refuses to show you one, or else claims not to have a social security number at all. Such employees generally fall into one of three categories: 1) those who do not accept the prevailing viewpoint that one needs a social security number in order to work in this country and who resent being made to do something they did not know about before; 2) those who are afraid that having a number will enable the government or private investigators to track them for various purposes such as child support enforcement; and 3) those who are true conscientious objectors and believe in principle that it is wrong for a government to try to number and track its citizens in such a way (for the special subset of people who have religious objections, see the final paragraph of this article). The categories can sometimes be very difficult to tell apart.
The IRS actually provides a procedure for employers and employees to use if such a situation occurs and the employer still wishes to hire the individual; the procedure is described in detail on its Web site at https://www.irs.gov/individuals/international-taxpayers/filing-forms-w-2-and-1042-s-without-payee-tins ("Filing Forms W-2 and 1042-S Without Payee TIN's"), and involves the use of an affidavit. While the IRS has no official form for such an affidavit, one form available for such a purpose is called "Form P-1, Reasonable Cause Affidavit by Payor For Not Obtaining Payee's Identifying Number" (a privately-developed form findable with an Internet search engine). Properly filled out and signed by the employer and employee, it serves as a way to request a release from the penalty otherwise provided for an employer under IRS Code Section 26 U.S.C. 6724(a). The employer certifies that it attempted to get the number, and the employee certifies that he or she declined to give the number. (Of course, the employee is thereby potentially submitting himself or herself to the tender mercies of the IRS, but that is a story that is outside the scope of this article.)
The employee might even cite IRS Code Section 26 U.S.C. 3402(p) and Treasury Regulation 26 C.F.R. Section 31.3402(p)-1 in declining to fill out a form W-4. If that occurs, and you hire him or her anyway, simply include an affidavit as discussed above with any required returns to the IRS.
Does Anything Trump That Exception? Top of Page
Despite the exception arising from the "voluntary" nature of the W-4, there is one law that presents a seemingly tougher obstacle for those without SSNs or who wish not to disclose it: the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), a federal law better known by its popular name as the New Hire Reporting Act. 42 U.S.C. § 653a(b)(1)(A) requires employers to report all new hires and rehired employees to a designated state agency (Texas Employer New Hire Reporting Operations Center). The report must include the employee's SSN; current legal guidance from the Texas Attorney General's Office and the U.S. Department of Health and Human Services, the agencies responsible for the state and national new hire registries, respectively, does not address any exceptions regarding SSNs, nor does it address the interaction of the new hire reporting statute with the Religious Freedom Restoration Act (42 U.S.C. § 2000bb) and the case law thereunder. The state law enacted to enforce the federal law is found in the Texas Family Code Sections 253.101 - 253.104. Strict penalties exist for an employer's failure to comply with that law. For more details on new hire reporting, see the article in this book titled "New Hire Reporting Laws". For information on the issue of employees without SSNs, see "Employees Without Social Security Numbers" (the next article in this book).
So, What to Do? Top of Page
To put all this together, if a person showed a Social Security card at I-9 time that the Social Security Administration later says contains an invalid SSN, the employer would have a good-faith suspicion that the Social Security card shown for the I-9 process was not genuine. However, the I-9 requirements can be satisfied with something other than a Social Security card, i.e., with one of the documents contained in "List C" of the I-9 as establishing authorization to work in the United States. If the employee shows what appears to be another valid document from List C, that would cure the defect caused by an invalid Social Security card. However, and this is very important, it would still not cure the defect caused by an invalid SSN for IRS and state unemployment tax purposes. The employer cannot simply continue to report wages under a SSN that is known to be invalid. A similar dilemma occurs if the employee does not furnish any SSN at all for reasons discussed above. In all such cases, the law does not present any obstacle to refusing to hire someone who refuses or fails to supply a correct SSN (other than those who are without SSNs due to religious reasons - see the final paragraph below).
The bottom line is that an employer is entitled to require as a condition of continued employment that all employees with social security numbers furnish them correctly, and in the situation of an invalid SSN, the employer would be entitled to insist that the employee furnish proof that he or she has a valid SSN before allowing the person to return to work, as long as all workers are subject to the same requirement, regardless of nationality or citizenship status. In the case of incorrect SSNs, it would be advisable for the employer to tell the employee about the problem, explain that the company cannot comply with federal and state wage reporting and payroll tax laws without valid SSNs for employees, give the employee instructions on how to contact the SSA (see https://www.ssa.gov/ssnumber/), and give the employee a reasonable amount of time to do so before making a temporary suspension from employment into a permanent discharge. In the case of employees who refuse outright to furnish a social security number, and the employer decides not to hire the employee, it would be well-advised to take advantage of its right not to explain why an applicant is not being hired. To explain would only invite legal action. If the employer does decide to hire the employee anyway, it would need to submit an affidavit (such as a completed "Form P-1") along with any reports the IRS requires regarding payroll-related taxes. An employee who refuses to complete the employee section of such an affidavit can be warned and then discharged for continued refusal to cooperate. For more on the issue of employees without SSNs, see "Employees Without Social Security Numbers".
Final Potential Fly in the Ointment Top of Page
If the employee is not hired, and the employee has cited religious objections to having a social security number, an employer with 15 or more employees may have a risk of an EEOC claim for an alleged failure to accommodate an employee's right to practice a legitimately-held religious belief. Despite a lack of court decisions on the new hire reporting laws, it is likely that a refusal to hire based upon reluctance to run afoul of the new hire reporting requirements would pass legal muster. For much more on this issue, see "Employees Without Social Security Numbers". In any such case, the employer should definitely consult a qualified employment law attorney regarding the matter.
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