Volume 20 Issue 5 -- September/October 2008
In recent years, government
raids on meatpacking plants with illegal immigrant workers have received much
news coverage, but meatpacking plants are not the only businesses that must deal
with this problem. Any business with undocumented workers faces potential
problems on a number of different fronts.
A business that has a worker
(employee or independent contractor) who has an invalid or suspect Social
Security Number (SSN), may be forced to deal with at least four different
federal agencies: (1) Internal Revenue Service (IRS), (2) Social Security
Administration (SSA), (3) Department of Homeland Security (DHS), and (4) Department
of Justice (DOJ). What’s more, the business's problems with each agency may be
Employers make Social Security
payments on behalf of their employees, while independent contractors (IKs) are
required to pay self-employment tax act (SECA) taxes which cover their social
security payments. Whether a worker is an employee or an IK, he or she is part
of the Social Security system.
The SSA maintains a master list
of valid SSNs and their associated names. When it receives Social Security
payments on behalf of workers whose names or SSNs do not match the agency’s
records, it may send an employer a “no-match” letter. Such a letter
effectively requires certain actions by the recipient to address the problem. It
can also lead to enforcement action by either the DHS often through its
Immigration and Customs Enforcement (ICE) division or by the DOJ, if a criminal
prosecution is deemed to be warranted.
The IRS apparently maintains its
own list of valid SSNs and Individual Taxpayer Identification Numbers (ITINs).
When it receives W-2s or 1099s reporting payments to persons whose names or tax
ID numbers do not match its list, the IRS may send out its own version of a
Although both SSA and IRS
no-match letters may appear to be similar in substance, the practical
consequences can be very different. Moreover, the actions required by a taxpayer
in response to an IRS no-match letter are quite different from those required by
an SSA no-match letter.
Most commonly, a business
receives a no-match letter from the SSA (or DHS) with respect to W-2 employees
who have incorrect, invalid, or suspect SSNs. Often, the IRS will send its
no-match letter with respect to businesses paying IKs and reporting the payments
In this series of newsletters,
the term “payor” is used rather than “employer” because many of these
workers are treated as independent contractors and receive 1099s rather than
W-2s. To illustrate the problems that a business can face, we will refer to
“Kon Fused,” or “Kon,” who is the payor, while the service provider and
payee will be “Jose.”
When a payor receives an SSA or
DHS no-match letter, the payor is supposed to take certain steps within certain
time periods in order to avoid being deemed to have willfully hired illegal
immigrants. The steps to be taken and the time periods within which to do so
lead to confusion, particularly among small employers that do not have a human
If Kon has a completed I-9 from
Jose and the SSN is valid, then there may not be a problem with Jose.
But what if there is a problem and Kon Fused ignores the status of Jose
and other workers?
There can be both civil
(monetary) and criminal penalties for hiring illegal workers or workers without
proper documentation. Although no assurance can be given to this effect, it
appears that the DHS and DOJ tend to bring criminal cases only against large
employers, but this is entirely within the discretion of the DHS and DOJ.
Even in the absence of a
criminal prosecution, Kon Fused could face monetary fines and penalties for
failing to have or file complete, accurate, or timely I-9s for its employees.
Kon could end up facing the question of whether to terminate Jose if he cannot
provide a valid SSN.
Recently, a number of states
have attempted to undertake separate enforcement of the federal immigration
laws, adding further confusion to the situation. Although somewhat
controversial, in some cases the states attempt to enforce the federal law,
while in other situations they impose heightened obligations on employers.
In the next issue
("Immigrant Workers and the IRS") we will look
at some of the tax aspects of the immigrant worker problem.
If you have a client in a
“no-match” situation and desire assistance, please give The Tax and Business
Professionals a call. There is also more information on this subject elsewhere
on our website.
By Tax and Business Professionals, Inc.
9837 Business Way
Manassas, VA 20110
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