Volume 11 Issue 1 -- January/February 2007
Volume 11 Issue 1 -- January/February 2007
In the past issue we began looking at the problems
employers face with undocumented or poorly documented workers (which we called
“Podocs”). Here, we will look at
other aspects of this issue.
Department of Homeland Security (DHS) Form I-9 titled “Employment
Eligibility Verification” is supposed to be completed for new or rehired
Podocs as well as other employees. As
noted on the form, it is not to be used in a manner that would cause the
employer to discriminate against an employee. Note that a Podoc is an employee,
even if he or she is undocumented. The
notice on the I-9 states, in part, “It is illegal to discriminate against
eligible individuals. . . . Employers CANNOT specify which document(s)
they will accept from an employee.”
Thus, if an employer states that he will not hire any Podocs, the employer
might be sued for discrimination. To further compound the problem, the employer
is asked to list which documents were provided by the Podoc prior to being
Even in remote parts of the country, it is clear there are numerous
restaurants and service establishments employing a number of Podocs. If all of
these Podocs were no longer working in the
As noted in the last issue, if the Social Security
Administration (SSA) has an invalid number for a Podoc, it will send a “no
match” letter to the employer. The employer has to get the problem resolved,
or risk a $50 fine for each incorrect W-2. Surprisingly,
the “no match” information which the SSA supplies to the employer currently
cannot be distributed to DHS, even though DHS is pushing for legislation which
would allow it to receive such information.
According to recent guidance published by the government, an employer will
not be deemed to have constructive knowledge of an invalid SSN for a Podoc, if
the employer takes reasonable steps within 14 days of receiving a “no match”
letter to resolve the discrepancy. Such reasonable steps would be to notify the
Podoc and have him or her correct the information. The employer is supposed to
ask the Podoc to resolve the matter with the SSA.
If the problem of “no match” is not resolved by the Podoc-employee
within 60 days, then there is an additional 3 days within which the employer is
supposed to act. At the end of the
63-day period after notice to the Podoc-employer, the employer may choose to
terminate the Podoc or take the risk that DHS may find that the employer has
constructive knowledge that the Podoc is an unauthorized resident alien
employee. In other words, the employer could be penalized or fined.
The “no match” guidance seems to indicate that if the employer has taken
the above-mentioned notification steps with the Podoc, then the employer will not
be deemed to have constructive knowledge that the Podoc is an
unauthorized individual working in the
Although many independent contractors fail to file income tax returns, many
still believe they will receive Social Security retirement benefits upon
attaining retirement age, but this is not true.
The Podocs who fail to file tax returns are probably not aware that they
may receive no or reduced Social Security retirement benefits.
We have recently learned that the IRS has apparently taken the position in
two tax audits that none of the amounts paid to Podocs, as 1099 compensation,
will be allowed as a deduction to the employer. Especially in the service
industry, this could mean that the employers will have huge amounts of income
and no corresponding deductions. This will effectively result in a tax on gross
receipts, not net profits. The Internal Revenue Code is a tax system based on
“income” not gross receipts. Can
or should the IRS disallow all 1099 payments made to Podocs?
We will attempt to provide additional guidance in these areas as more is
learned. You may want to call Newland & Associates for advice and
documentation approaches with regard to these intractable problems.
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