The Social Security Administration is again sending no-match letters, called Educational Correspondence Announcements, to employers that file W-2s on which employees’ names and Social Security numbers don’t match its records. Warning: W-2s with these mismatches may also garner penalties from the IRS.
Who’s in the hot seat now. This past summer, the SSA began mailing out EDCOR letters in batches of roughly 200,000 every couple of weeks to employers that filed at least one 2017 W-2 on which an employee’s name/SSN didn’t match. Hitch: The letter doesn’t identify the number of mismatches or the employees whose names/SSNs don’t match. The letter directs you to resources on the SSA’s website.
Next March, the SSA will send separate letters, called an Employer Correction Request, to employers that filed at least one 2018 W-2 on which a name/SSN mismatch was reported. Next September, the SSA will send correction request letters to employers that filed 2018 W-2s late and on which at least one mismatch is reported.
These letters will inform you of the number of mismatched W-2s you filed and the corrections you need to make.
To correct name/SSN mismatches, you must file Forms W-2c/W-3c with the SSA and provide employees with copies of Form W-2c.
Decoding EDCOR discrepancies. Although EDCOR letters are innocuous—the SSA simply asks for your help to ensure the accuracy of wage reporting and directs you to resources on its website—resolving employee name/SSN mismatches are critical, because the SSA can’t credit employees’ earnings to their accounts, which, in turn, affects their benefits when they retire.
EDCOR letters also aren’t as sinister as they may appear to be. Employee name/SSN mismatches can occur for myriad reasons. Most common: Female employees got married or divorced and never changed their names with the SSA.
For mismatches not involving marital status, eliminate the possibility that you made a mistake when entering employees’ data into your payroll system by asking to see their Social Security cards again. If you were right, tell them to visit an SSA office to clear up the discrepancy.
Regardless of how mismatches arise, it’s crucial to follow up with employees. If they can’t square everything up with the SSA, termination may be an option. Red flag: Before you fire, be sure you have a company policy that sets out the reasonable length of time you’re willing to wait for employees to resolve their issues, and that termination may result if they can’t resolve them. Employees, of course, should be aware of the policy before adverse action is taken.
Other key payroll steps. You may rely in good faith on the SSNs employees wrote on their initial W-4s, but your good faith goes out the door if you know those SSNs are incorrect. In that case, the IRS says you can avoid penalties for filing incorrect W-2s by performing a due diligence. What diligence is due: You may be required to make two annual solicitations for the correct SSNs by requesting that employees complete new W-4s.
If employees continue to provide incorrect SSNs on those new W-4s, you’re off the hook for W-2 penalties, but not for withholding. If the SSNs aren’t corrected, you’re probably on safe ground if you consider those W-4s to be invalid. Reminder: You must withhold based on old W-4s you know are valid, or at the single/zero rate until employees provide you with valid forms.
PAYROLL PRACTICE TIP: The SSA has more information about the EDCOR process, including a sample EDCOR letter, on its website. See www.ssa.gov/employer/notices.html for more information.
