November 2007

DHS Regulation Significantly Increases Employer Responsibilities Regarding No-Match Letters

The Social Security Administration (SSA) routinely issues a “no-match” letter to an employer in the event that an employee’s Social Security number (SSN), as reflected in SSA records, does not match the SSN as stated on the employee’s W-2 Form. But the Department of Homeland Security (DHS) recently finalized a regulation that considerably increases the responsibilities of any employer that receives an SSA “no-match” letter.

In years past, the purpose of “no-match” letters was primarily informative, and no specific follow-up action was required of an employer. However, “no-match” letters for the 2006 tax year, mailed to arrive from September to November 2007, will be accompanied by a letter from the DHS warning employers that the failure to properly respond to a “no-match” letter in accordance with the recent regulatory changes could result in civil and criminal sanctions.

The mailing for the 2006 tax year is projected to affect more than 8.7 million employees and 140,000 employers nationwide. Though a “no-match” can often be the result of a benign cause, such as a clerical error or a name change related to a change in marital status, it may also indicate an employee’s status as an illegal alien.

Under the new DHS regulations, employers are required to take the following action upon receipt of a no-match letter in order to verify the identity of the employer in question:

• Promptly review records (within 30 days of receipt of the letter) to ensure that the error did not result from a mistake on their part
• Ask the employee to confirm the accuracy of company records (within 90 days of receipt of the letter, but for practical purposes, this should be done as soon as possible)

If the issue is still unresolved, then the employer should direct the employee to resolve the matter with the SSA. If the employer is able to identify the error, then the employer will need to follow the instructions set forth in the SSA’s “no-match” letter. The employer should then verify that the correction has been made appropriately by using the Social Security Number Verification System (SSNVS), and document the date and time of verification.

Should the matter remain unresolved within 90 days of the letter’s receipt, then the employer will need to complete a new I-9 Form similar to when the employee was first hired, except:

• the questionable Social Security number cannot be used on any document to verify the employee’s authorization for work; and
• any document used to verify the employee’s identity must feature the employee’s photograph.
  

It is important to note that should an employer be unable to confirm an employee’s work authorization status in accordance with these new procedures, then that employer may be in violation of the law for knowingly continuing to employ unauthorized persons. However, the DHS has stated that simply the receipt of a “no-match” letter is not sufficient grounds for termination of an employee, and employers should not assume that the receipt of such a letter is indicative of any malice on the employee’s part.

Further, the DHS has stated that any employer that takes action against an employee purely on the basis of the “no-match” letter may be in violation of the law. Therefore, the best way to avoid legal penalties is to apply the outlined procedures above uniformly to all employees subject to a “no-match” letter.

If your company receives a “no-match” letter from the SSA, or if you have any additional questions or concerns, do not hesitate to contact the business and tax advisory specialists at Cherry, Bekaert & Holland.

FOR MORE INFORMATION, PLEASE CONTACT:
Brooks Nelson, Partner
bnelson@cbh.com
1.800.849.8281
www.cbh.com

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