How to Respond When the IRS Informs You of an SSN Mismatch
Under the Affordable Care Act (ACA), applicable large employers (ALEs) are required to file IRS 1095-C forms for their employees each year. Since that reporting requirement went into effect in 2016, you may have found yourself on the receiving end of an IRS notice informing you that an employee’s name and Social Security number (SSN) do not match. The IRS has specific procedures for making corrections when a mismatch occurs, and employers should implement best practices to appropriately address any mismatches and avoid potential penalties.
Purpose of the 1095-C
The 1095-C form identifies:
- The employee and the employer;
- The months the employee was eligible for coverage during the preceding year; and
- The cost of the cheapest monthly premium the employee could have paid under the employer’s health insurance plan.
To identify the employee for IRS purposes, Box 2 of the form asks for her SSN. Annual filing of the 1095-C form became mandatory for the 2015 tax year. Forms verifying offers of employer-provided health insurance and coverage for 2018 should be distributed in January 2019.
Basic IRS Regulations for Solicitation of SSNs
An employer is required to solicit an employee’s SSN at the time the employee begins work. Because employees are required to furnish W-4s to the employer when their employment begins, the W-4 can be used for the initial solicitation of the employee’s SSN.
If you receive an IRS notice about an incorrect SSN for an employee, you are required under the regulations to make an annual solicitation for the correct SSN by mail, telephone, electronic media, or in person. A second annual solicitation is required if you receive another IRS notice of an incorrect SSN for the employee the next year.
You should retain a record of the initial solicitation, any required annual or second annual solicitation, and the employee’s response to the solicitation, as well as a note or an annotation if the employee fails to respond. Maintaining a copy of the W-4 is a simple way to keep a record showing that you met the initial solicitation requirement.
The IRS recommends that if you receive a corrected SSN from an employee, you file a Form W-2c with a separate form for each year that needs correction. Once the W-2c is filed, the Social Security Administration (SSA) matches the name and SSN on each form against its database of all SSNs issued, and the corresponding lifelong earnings history for the employee is updated. Because that earnings history is the basis for determining an employee’s future eligibility and benefits amount for retirement, disability, and survivorship programs through the SSA, employees with valid SSNs should be incentivized to maintain accurate records with their employers.
How to Respond to IRS Notification of a Mismatch on a 1095-C
After filing the 1095-C, some employers may receive an IRS notice indicating that the employee’s name and SSN do not match. According to the IRS, all errors need to be corrected, and the 1095-C forms need to be refiled. The published instructions for the 1095-C specifically reference SSN errors as a type of error that must be corrected.
As a best practice, the first step is to check the form for typos and misspellings, which could be the cause of the error notification. Additionally, if an employee gets married or divorced and doesn’t change her name with the SSA but begins using a different name, there will inevitably be a mismatch. In that case, the first step is to verify what the employee listed on her original W-4 and any subsequent W-4s and check whether she submitted a copy of her Social Security card when you completed the I-9. If the information on file and the information on the 1095-C that was flagged for a mismatch error are the same, the next step should be to speak with the employee to determine whether there’s an explanation for the IRS’s assertion that her name and SSN do not match.
If an employee expresses uncertainty about why the IRS is reporting a mismatch, you may wish to advise him to look into the issue. It’s possible that he isn’t being credited for his work in years when the SSA’s system shows a name/SSN mismatch. If there’s no explanation (e.g., a marriage or divorce), ask to see a copy of the employee’s Social Security card to make sure the name and number on the card match your records.
Prospective vs. Retrospective Corrections
Generally, according to the 1095-C instructions, in the absence of fraud or identity theft, known errors on the 1095-C should be corrected, and a new form should be submitted. You should also be sure to correct other payroll records going forward. Fix any typos or misspellings, and notify employees who haven’t officially changed their names with the SSA that their future paychecks will be issued in the name that appears on their current SSA record until they provide proof that they have updated the record.
You should also determine if any forms and submissions other than the 1095-C are implicated by an SSN mismatch notice, including the employee’s W-2. For instance, employer-managed retirement accounts for which the employee has submitted certain paperwork could be affected.
Moreover, you should consider whether retroactive corrections are required under the regulations applicable to the particular type of form you now know was filed with an incorrect SSN. The risk associated with simply ignoring the fact that documents (including the 1095-C) were filed with incorrect SSNs will depend largely on the reason for the error (i.e., typos versus identity theft), the number of other forms and official documents that are affected by the discrepancy and for how long, and your tolerance for risk.
While many employers may elect to simply change their payroll systems going forward and take their chances with any past errors, you should be aware of the penalties that can be imposed per return for filing information returns (e.g., 1095-Cs) with missing or incorrect taxpayer identification numbers (TINs), including SSNs. Penalties for failure to timely file accurate information returns using the correct media and in the proper format were increased in 2010 for all information returns due on or after January 1, 2016.
Penalties differ based on the size of the company (more or less than $5 million in gross receipts) and increase according to how late the filing was, ranging from $50 per return up to $520 per return for filings due after January 1, 2016, with a $1,059,500 maximum for small businesses and a $3,178,500 maximum for large businesses. Note that if an employer intentionally disregards the filing obligation, there is no cap on the potential penalties.
Even though you may discover a problem when you file a 1095-C and you may not be subject to penalties because the incorrect filing was due to reasonable cause rather than willful neglect, other information returns with mismatched names and SSNs for the same employee could be subject to different solicitation or correction requirements. Further, once you are made aware of the mismatch, choose not to address the situation, and submit additional paperwork that you now know contains a mismatched SSN or other TIN, your conduct may no longer be seen as having a reasonable cause, but may be considered willful neglect or an intentional disregard of the regulations.
What to Do in the Event of Fraud or Identity Theft
If an employee acknowledges that the name and SSN he initially provided you were false, termination is a potential option as long as you apply such a policy consistently throughout your organization. An admission of this type may also raise immigration and I-9 issues that must be handled carefully. These situations are very sensitive and should be reviewed by legal counsel on a case-by-case basis.
If you are notified of a name/SSN mismatch by the IRS, you should maintain a record of the required annual solicitation for the correct SSN, whether you solicit the information by mail, telephone, electronically, or in person, in accordance with the IRS’s requirements for each method of solicitation. Upon receiving a W-4 or Form W-9, Request for Taxpayer Identification Number and Certification, you should make any necessary corrections to the affected forms. Retain a record of the follow-up solicitation and any response you receive from the employee, as well as a notation if no response is received or the employee resigns after receiving the solicitation. In short, don’t ignore a notice from the IRS, don’t jump to conclusions, and do make the necessary corrections.
This article, slightly modified to note recent updates, was featured in the November 2018 issue of the Wisconsin Employment Law Letter, which is co-edited by Axley Brynelson Attorneys Saul Glazer and Michael Modl and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.