How do employers handle payroll when a worker provides a fake Social Security number?
Executive summary
When an employer discovers an employee used a fake or incorrect Social Security number, the employer is still generally obligated to pay for hours worked and to withhold and report taxes, but the wage reporting can create mismatches with SSA and IRS systems that trigger notices, administrative headaches, and potential penalties [1] [2] [3]. Employers must balance payroll and withholding duties with legal obligations to investigate and correct identity information, while avoiding discriminatory treatment or unlawful inquiries [4] [5].
1. Employers still must pay and withhold — payroll duties don’t evaporate
Federal wage-law authorities say employers must pay employees for hours actually worked regardless of the validity of the worker’s SSN, and must withhold income, Social Security and Medicare taxes and report wages to the IRS even if the worker provided false identifying information [1] [2]. Practically, that means payroll runs, tax deposits and year‑end reporting obligations continue, which is why many employers treat the discovery of a fake SSN first as a payroll and tax problem rather than only an immigration or criminal one [2].
2. Reporting with a fake SSN creates “mismatch” problems with SSA and IRS
When an employer files W‑2s or deposits taxes under a name/SSN combination that doesn’t match SSA records, the Social Security Administration may send mismatch or “No Match” notices and will not credit the proper account unless the discrepancy is resolved, and the IRS and SSA warn these errors can hamper benefit calculations and tax collection [4] [3]. The SSA’s employer guidance and SSNVS resources instruct employers to investigate typographical errors, ask employees to verify their card, and help resolve issues with SSA rather than immediately taking adverse action [4] [6].
3. Employers must investigate but tread carefully to avoid discrimination claims
Guidance to employers emphasizes documenting reasonable efforts to resolve a mismatch — for example asking for a Social Security card or using SSNVS — while avoiding questions that would unlawfully discriminate or assume immigration status, because misuse of verification services or coercive practices can create legal risk [6] [5]. Lawyers and HR specialists routinely advise involving counsel when a mismatch persists, because the employer’s response must both protect payroll interests and comply with anti‑discrimination and employment law [5].
4. Discovery often leads to termination but termination carries legal nuance
Many employers end employment after discovering a fake SSN, and case law shows employers commonly consider past use of false SSNs a disqualifier for hire or continued employment; however, that action is not risk‑free — factual circumstances (how and why the false SSN was used, whether the worker later obtained proper authorization) can matter in disputes and appeals [7]. Employers who fire without a careful, documented investigation may face wrongful‑termination or discrimination claims, so the common practice of discharge is balanced against legal exposure [5] [7].
5. Fixing records, identity theft, and criminal exposure are separate tracks
If the SSN belonged to someone else or was fictitious, the worker or the injured SSN owner may need to contact IRS and SSA to “unscramble” earnings and correct records; federal rules make some uses of false SSNs criminal in the context of causing erroneous benefit payments, so employers and workers may become entangled with SSA/IRS fraud investigations if misreporting affected benefits or payments [8] [9]. The GAO and SSA materials stress that employment‑related identity fraud disrupts tax collection and benefit systems, prompting interagency follow up [3] [10].
6. Practical workflow for employers: verify, document, correct, and consult counsel
Best practices reflected in employer guidance are to verify records for typographical errors, ask the employee to produce a Social Security card or contact SSA, use SSNVS for wage‑reporting verification only, correct payroll records and file accurate W‑2/1099 information once the correct SSN is obtained, and consult employment/tax counsel before termination or reporting suspected fraud to avoid procedural missteps and legal exposure [6] [11] [12] [5].
7. Competing incentives and the politics of enforcement
Employers face conflicting pressures: protect the business from fraud and penalties, comply with tax and benefit reporting, and avoid discriminating against vulnerable workers who may have used false IDs out of necessity; governmental guidance tends to focus on correcting records and interagency coordination while advocacy groups stress remedies for workers whose earnings were miscredited — both perspectives shape how employers ultimately act [3] [8] [5].