How to Handle an Incorrect Social Security Number

If you’re in HR or Payroll, you can most likely say that you have dealt with someone giving you an incorrect social security number.
 
A bad SSN is one issue, but what would you do in the following strange scenario?  A small hotel hires employees on Saturday, when Payroll/HR is not working. The employee will then work Saturday and Sunday, and then disappear on Monday.  When payroll returns to the office they discover the SSN they gave is fake.  What should they enter on the terminated employee’s W2?
 
The IRS has a definitive answer - if you don’t have any better information than what was originally provided to you by the employee, you should report using the name and SSN that are in your records.  Many employers in this situation will attempt to change the SSN to all zeros but the IRS has stated that does not help SSA.  The employee may come to SSA years later with their correct information. If SSA has what was on the original W2, it’s easier for them to find that information and make the corrections.

Once the IRS receives that incorrect W2, they may send a penalty notice for failing to include the correct SSN on the Form W2. However, this does not mean the employer has to accept the penalty. The employer can rebuttal by proving they initially asked the employee for their SNN and used that provided SSN on their W2. The IRS may send up to two more penalty notices, after the original, in which the employer must solicit the employee for their correct SSN. After this process of 3 penalty notices and 3 solicitations, the employer is free and no longer has to send solicitations to the employee, even if they continue receiving penalties from the IRS.

To ensure you avoid penalties, a good hiring practice is to photocopy the employee’s social security card and attach that copy to their W2. Always double check to make sure the number on the card and the Form W2 match.

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