NCA’s Club Alert Network

Social Security No-Match Fines Announced

Last year, many private clubs received notices indicating that they had employees whose social security numbers (SSNs) did not match the information in the government’s system.  The agency sent out thousands of “no-match letters” to unsuspecting employers warning them of the mismatched names and numbers as well as penalties that could be incurred for supplying incorrect information.  In late September, the IRS issued clarification as to how they will proceed with fining employers for SSN no-matches on W-2 forms and under what conditions those penalties may be waived.

The Penalties: The IRS’s penalty program will send out fine notices in mid-2004 covering returns from the 2002 tax-filing season. The penalties are structured as follows:

·         The penalty for filing an incorrect W-2 will be $50 per payee up to a maximum amount of $100,000.

·         If the no-match is corrected within 30 days, the penalty drops to $15 per no-match.

·         If the no-match is corrected by August 1, the penalty will drop to $30 per no-match.

Waiver of Penalties: In outlining the penalty program, the IRS provided two circumstances under which the employer will have reasonable cause to have the penalties waived.

Significant Mitigating Factors: The IRS will not seek no-match penalties in cases where the employer shows a significant mitigating factor, such as a history of compliance, never having to have filed previously or some other similar significant factor.

Events Beyond the Employer’s Control: The other event that would create reasonable cause to waive no-match penalties would be an event beyond the employer’s control. The regulations provide that in order to establish reasonable cause on this basis, the employer must show that the failure resulted from the employee failing to provide the necessary information or the employee providing the employer with erroneous information.  Thus, if an employee provided erroneous information on a W-4 from that the employer used to complete the W-2 form, the employer will be able to claim that the no-match was an event beyond their control.

Compliance:

Under the guidance provided by the IRS, employers who file W-2’s with no -match SSNs will be subject to a penalty of $50 per mismatch.

However, if the no-match is the result of erroneous information provided by the employee, the employer will have reasonable cause to have the penalty waived.

The no-match penalty may also be waived if the employer can demonstrate a significant mitigating factor such as past compliance.