From our friends at Breedlove and Associates
ITIN vs. SSN
All employers -- including household employers -- are responsible for verifying the eligibility of their employee to work in the U.S. When doing so, there is often confusion between an Individual Taxpayer Identification Number (ITIN) and a Social Security Number (SSN).
In this issue of The Legal Review, we share a case that demonstrates the differences between ITINs and SSNs and the potential issues that can arise if families don't address it properly.
After narrowing a list of candidates down to two qualified finalists, the Smith family made an offer to a nanny to care for their 2 toddlers. Like many busy, dual-income professionals, the Smiths did not have much time to research employment laws, but they were business professionals so they figured they had a pretty good idea of how to employ someone legally. To get the nanny on the books they gave her a Form W-4 to fill out. She returned the completed form on her first payday. This gave the Smiths just enough time to go online to our free nanny pay calculator and calculate her first paycheck. (They intended to join our service at that time, but they procrastinated).
All employers are required by law to verify to the best of their ability that each and every employee (even part-time and temporary employees) are authorized to work in the United States. Employers must have all new hires complete Form I-9 (Employment Eligibility Verification Form) within the first three days of employment.
In order to satisfy the requirements of the I-9, the employee must produce a combination of designated documents such as a passport, driver's license, social security card, etc. The completed Form I-9 is not filed with any government agency, but it must remain in the employer's files for at least 3 years after the date of hire or one year after the employment ends, whichever is later. Failure to comply with this law can induce a fine for each day that the illegal employment continues.
Individuals are not required to have a Social Security Number (SSN) to fill out an I-9 or to be eligible to work in the United States. (Some individuals are allowed to work in the United States temporarily, and are not assigned a SSN because they will not retire here. Therefore, they are not eligible to receive long-term benefits, such as Social Security and Medicare and do not need a SSN).
The IRS issues Individual Taxpayer Identification Numbers (ITINs) to individuals who do not have and are not eligible to obtain a SSN in order to provide an efficient means to handle income tax returns and payments. Getting an ITIN does not change a person's immigration status or right to work in the United States.
The Smith's nanny filled out Form W-4, including the portion that asks for her SSN. But the number that she wrote in the SSN field of the W-4 was actually her ITIN, which she believed to be a valid substitute for a SSN on the W-4. While the ITIN looks like a SSN (it has the same number of digits and the same xxx-xx-xxxx format as a SSN), it cannot be used interchangeably with a SSN. The Smiths did not realize that the identification number she entered on the W-4 was not a SSN because it looked exactly like a SSN.
The Smiths' nanny filed a personal income tax return at the end of the year using her ITIN. The Smiths asked their accountant to file year-end employer reports, Forms W-2 Copy A and W-3, with the SSA using what they thought was their employee's SSN. Unfortunately, it was really her ITIN.
Since the SSN is the identification number used for crediting of Social Security, Medicare and Unemployment taxes, when an employer shows an ITIN on the W-2, the SSA posts the W-2 Copy A in a suspense file because an ITIN is not a valid SSN. Sooner or later, the SSA sends "no match" letters to all employers in the suspense file.
The Smiths received their first "no match" letter from the SSA almost two years after the nanny started working for them. The letter penalized the Smiths for filing a Form W-2 Copy A with an invalid SSN. The Smiths pulled their file to review the Form W-4 that the nanny had submitted during her first week of work. The number that the nanny had provided clearly matched the number on the notice. Now the Smiths were worried that the nanny had given them a bogus SSN.
Mr. Smith, a partner in his law firm, was terrified that a felony charge might cause him to lose his license to practice law. He called an immigration attorney friend to ask about the letter. His friend explained to him that the notice implies that the Smiths are knowingly employing an individual that is not authorized to work in the United States. The friend explained that the Smiths had 90 days from the receipt of the notice to verify the employee's information and "clean up" the paperwork mess.
Not sure how to do that, the friend recommended he call Breedlove & Associates.
After reviewing the SSA notice and their nanny's Form W-4, Breedlove & Associates determined that the number that the nanny had provided in the SSN field of the W-4 was actually an ITIN. The string of numbers had "9" as its first digit. SSN's never start with the number 9.
We explained that a Form W-2C (Corrected Wage and Tax Statement) needed to be filed as soon as their nanny obtained a valid SSN. In order to protect the family from charges and fines, we also advised them to suspend employment within the 90-day window, unless and until the nanny submitted a Form I-9 with the required documentation.
Immediately prior to the deadline, the nanny was able to obtain a SSN. We helped the family clean up the mismatched records with the Social Security Administration and avoid any fines or charges.
In this case, the family escaped unscathed -- except for the dozens of hours of wasted time and unnecessary stress for all parties.
How the Whole Thing Could Have Been Avoided
With immigration and worker eligibility continuing to be a hot political issue, it is very important for household employers to be aware of their Form I-9 responsibilities. This is one of many legal landmines that a reputable nanny staffing agency can help families avoid before, during and after the hire.
If a family decides to employ on their own, they need to make time for the administrative/legal paperwork. Failure to obtain the proper identification numbers and documents can lead to time-consuming and potentially- expensive problems.
If you have additional questions about this or any other aspect of household employment tax and labor law, please call 888-BREEDLOVE ) orvisit us online.