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The "Mismatch Letter" Is in the Mail: The Social Security Administration Ramps Up Its Warnings to Employers By J. Ira Burkemper 1The 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.2
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.3 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.4 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.5 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.6 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.7 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.8 In addition, SSA has indicated that intends to work more closely with IRS to facilitate enforcement of the penalties under the IRC mentioned above.9
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.10 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.11 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.
Immigration Implications of SSN Mismatches When complying with SSA’s recommendations on clarifying discrepancies between reported employee name and SSN data, employers must take care to avoid violating employer sanctions provisions related to employment eligibility verification obligations and prohibitions against discriminatory employment practices. SSA’s Code V letters instruct employers to take the following action to correct discrepancies in W-2 data:
SSA’s Code V letters instruct employers that the receipt of the letter is "not a basis, in and of itself, for [the employer] to take any adverse action against the employee, such as laying off, suspending, firing, or discriminating against an individual who appears on the list. Any employer that uses the information in this letter to justify taking any adverse action against an employee may violate state or federal law and be subject to legal consequences. Moreover, this letter makes no statement about [the] employee’s immigration status." SSA recently revised its Code V letters to include more explicit language that employers should not interpret the letters to mean that any employee is not authorized to work in the United States. The revised letters also include more information in Spanish. When employers follow SSA’s advice for resolving discrepancies in W-2 data, immigration issues frequently arise because of employers’ obligations under the Immigration Reform and Control Act of 1986 ("IRCA")13 to ensure that they employ only authorized workers in the United States while at the same time avoiding discriminatory employment practices. Fortunately, INS has provided guidance on employers’ obligations with respect to information they receive from the SSA in mismatch letters. INS has issued two letters that discuss whether SSA's notice of this discrepancy to an employer -- by itself or in combination with additional evidence related to an employee's employment authorization in the United States -- would put the employer on notice that the employee is unauthorized to work and whether employers are required to reverify employment authorization documents or inquire further as to the employee's work authorization. In the first letter, dated December 23, 1997, signed by then General Counsel David A. Martin,14 INS notes that there may be legitimate reasons for a discrepancy between the name and SSN reported by an employee on the W-2 and/or Form I-9 and SSA records. Mr. Martin’s letter contains helpful information for employers on which social security numbers are legitimate and on procedures to correct a Form I-9 when information on the form is recorded erroneously. The letter also discusses considerations when an employee who has been working on a false SSN obtains a legitimate SSN and presents the new number to an employer. On the other hand, Mr. Martin’s letter provides only limited guidance to employers who face the following scenario: employees whose social security numbers appear on a Code V letter claim that they have done everything they can to resolve the discrepancy with SSA, but the SSA is unable to match the earnings to a valid name and social security number. At this point the employer is faced with the following dilemma: continue to employ the worker and face possible penalties under the employer sanctions laws, including possible criminal penalties for a practice of employing workers with knowledge of their unauthorized status, and penalties under the IRC for failure to report accurate W-2 data, or terminate the employee and face a possible claim of discrimination. Mr. Martin confirmed that INS "would not consider notice of this discrepancy from SSA to an employer by itself to put the employer on notice that the employee is unauthorized to work, or to require reverification of documents or further inquiry as to the employee’s work authorization. Whether an employer has been put on notice of an unauthorized employment situation is, however, an individualized determination that depends on all the relevant facts, and there may be specific situations in which SSA notice of an SSN irregularity would either cause, or contribute to, such a determination." 15 In its more recent letter, INS provided further clarification on these issues. The letter, dated April 12, 1999 and signed by then General Counsel Paul W. Virtue, suggests that employers can not ignore the consequences of follow-up activity it performs in response to a SSA mismatch letter. 16
Because there may be many reasons for a mismatch between employer records and SSA records that are unrelated to employment authorization, SSA’s mismatch letters alone do not trigger an obligation to reverify work authorization. However, an employer’s investigation into the cause of the discrepancy may provide the employer with information relevant to compliance with employment eligibility verification rules. If the employee has been given the opportunity to explain and resolve a discrepancy between the employer's records and SSA's records and has failed to do so satisfactorily, or if the employer learns that the employee is not authorized to work, the INS may consider the employer to have violated the prohibition against knowingly continuing to employ an unauthorized alien if the employer fails to take reasonable steps, such as reverification, to ensure that the employee is authorized to work. Employers risk a charge of actual or constructive knowledge of employing unauthorized aliens when they choose to ignore employee reports of failed attempts to reconcile SSN data with the SSA. As Mr. Virtue states in his letter, "[I]n considering whether the totality of the circumstances rises to actual or constructive knowledge, the SSA notice is a relevant fact that would support a conclusion that it does." Because of the employer’s obligation to confirm the employment authorization status of its employees listed on an SSA mismatch letter, if an employee is unable to explain and resolve the discrepancy within a reasonable period of time, then many immigration lawyers would recommend that the employee be terminated. Whether the termination is accomplished within a reasonable period of time to avoid a charge of continuing unauthorized employment will vary depending on the facts, so employers should seek the advice of counsel on whether to document communication with the employee advising of the SSA letter and the need to visit SSA if the discrepancy is not due to a clerical error in transcribing the number or name onto the I-9 or W-2 forms. If the employee admits during this process that he or she is unauthorized, the employer must likewise terminate immediately. On the other hand, employers also risk a charge of unlawful discrimination by terminating employees because they are not able to explain and resolve SSN/name discrepancies.17 As in any employment action, employers should be careful to treat employees similarly, without respect to the employee’s ethnic group, citizenship status, or nationality. Further, employers should be careful to avoid a charge of "document abuse" that could result if employees are required to show their social security cards to facilitate resolution of a mismatch. SSA Code V letters carefully advise employers to "ask [their] employees to check [their] Social Security card and to inform [them] of any name or SSN difference’ between the records and the cards. In contrast, INS’ April 12, 1999 letter suggests that employers "reconcile [their] records for SSA purposes [by] verifying names and SSNs by examining Social Security cards." Under IRCA, employers should avoid requiring employees to present particular documents for employment eligibility verification purposes.18 One specific situation in the cited INS correspondence on SSA mismatch letters involves the following scenario: an employee who has been working under a false SSN subsequently becomes authorized for employment and obtains a legitimate SSN. The employee then informs his employer that his SSN has changed so that his earnings can be credited to his SSA account. The employer in this situation should consider reviewing its policy regarding termination decisions when employees commit fraud in the workplace and consult competent counsel regarding the employee’s possible termination. In this context, Mr. Martin’s letter contains a reminder that "[k]nowing false statements on the Form I-9, or the use of false documents to obtain employment, are felonies that are not excused by subsequent grants of work authorization or lawful status." 19 Mr. Martin’s letter further advises that employers should not continue to rely on Forms I-9 that the employer knows were completed fraudulently; instead, the employer in this situation should require that the employee complete a new Form I-9 if the employer continues the employment, while retaining the original form for the designated period as evidence of compliance with the verification requirements at the time of hire. Because of SSA’s new policy regarding issuance of "mismatch" letters, immigration practitioners should be prepared to field more questions from clients regarding the immigration compliance issues raised when employers receive these letters. SSA suggests contacting the Employer Services Liaison Officer serving the employer’s area with questions.20
1 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 jib@entertheusa.com. 2 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.3 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).4 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 Id.6 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."7 This information is based on correspondence between the author and SSA's Employer Services Liaison Officer in San Francisco, Mr. Bill Brees.8 Office Of The Inspector General report, supra note 3.9 Id.10 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.htm11 Id.12 The IRS advises taxpayers who change their name for any reason to get updated identification cards unless they intend to use their former name for legal purposes. Form SS-5, Application for a Social Security Card, is available from the SSA web site at http://www.ssa.gov, or by calling (800) 772-1213.13 Public Law 99-603 (November 6, 1986).14 Mr. Martin’s letter is reproduced and discussed in 75 Interpreter Releases 203 (Feb. 9, 1998).15 Id.16 Mr. Virtue’s letter is available on AILA InfoNet, Doc. No. 01061431 (June 14, 2001).17 See LULAC v. Pasadena School Dist., 662 F.Supp. 443 (S.D. Tex. 1987) (school district required to reinstate undocumented aliens eligible for legalization under IRCA to custodial positions they occupied prior to termination for providing district with false social security numbers).18 8 U.S.C. §1324b(a)(6).19 See, e.g., 18 U.S.C. § 1546(a), which provides for fines and imprisonment for up to ten years for an individual who "knowingly forges, counterfeits, alters, or falsely makes any immigrant or nonimmigrant visa, permit, border crossing card, alien registration receipt card, or other document prescribed by statute or regulation for entry into or as evidence of authorized stay or employment in the United States, or utters, uses, attempts to use, possesses, obtains, accepts, or receives any such visa, permit, border crossing card, alien registration receipt card, or other document prescribed by statute or regulation for entry into or as evidence of authorized stay or employment in the United States, knowing it to be forged, counterfeited, altered, or falsely made, or to have been procured by means of any false claim or statement, or to have been otherwise procured by fraud or unlawfully obtained."20 SSA’s national employer services number is 800-772-6270. SSA’s Employer Services website at http://www.ssa.gov/employer also has general information that may be helpful.2002 Ó Copyright Paparelli & Partners LLP. All rights reserved.
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