How to Handle an Incorrect Social Security Number

It’s the age of identity theft, and Social Security Numbers are a hot commodity on the black market!  It’s 11:00 – do you know where your SSN is?

If you’re in HR or Payroll, no doubt you can say that you have dealt with someone who gave you an incorrect social security number. 

Here are the steps to take when you discover you’re working with an incorrect SSN:

  1. Report using the name and SSN you were given
  2. If you receive penalty notices from the IRS, you don’t necessarily have to accept the penalty.
  3. Solicit the employee for corrected information each time you receive a penalty notice (up to 3 times).
  4. After the first 3 notices and solicitations, if the employee makes no response with corrected information, the employer is free.
  5. To avoid future issues, attach a copy of the employee’s SSN to their W2.

Bad social security numbers may not always be nefarious, sometimes they're the result of an innocent case of transposing numbers. But if your employee record does not match what the SSA and/or the IRS have on file, it’s going to cause a lot of grief and may even cost you expensive penalties.

In situations where you’re reporting for a past employee, things can get tricky. What would you do in the following scenario?

A small hotel hires employees on Saturday, when Payroll/HR is not working. The employees will then work Saturday and Sunday, but never show up again. When payroll returns to the office they discover the SSN they gave is fake.  What should they enter on the terminated employee’s W2?

Report Using the Given Name & SSN

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 you were given by the employee.

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 track down that information and make the corrections.

Dealing With Penalty Notices From the IRS

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 rebut by proving that they initially asked the employee for their SSN and used that provided SSN on their W2.

The IRS may send up to two more penalty notices, after the original. After each penalty notice, the employer must solicit the employee for their correct SSN. After this process of 3 penalty notices and 3 solicitations, if the employee makes no response with corrected information, the employer is free and no longer has to send solicitations to the employee, even if they continue receiving penalties from the IRS.

Avoid Future SSN Issues!

To ensure you avoid penalties, a good hiring practice is to photocopy each employee’s social security card.

Be prepared for employees to balk; they know all about identity theft, but nearly nothing about legal hiring practices. Photocopying social security cards is perfectly legal.

Assure employees the copy will be kept in their personnel file to be used for tax reporting purposes and will never be compromised. This way, you can attach that copy to their W2 if the IRS ever questions SSN validity. But always double check to make sure the number on the card and the Form W2 match before you claim innocence – you’re human after all, maybe you really did transpose digits when you keyed that number into your system!

Optimum’s HR Software helps streamline and simplify the hiring process, making it easier for your HR department to catch applicant issues on the front end. To learn more about Optimum HR and how its many features can help you, try our free software demo today!

The contents of this article are intended to convey general information only and not to provide legal advice or tax advice.

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