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What happens to payroll taxes withheld from workers with false or stolen SSNs?
Executive summary
When employers report wages under a false, stolen, or mismatched Social Security number (SSN), payroll taxes are still withheld and reported, but those withholdings may not be credited correctly to the rightful Social Security account and can trigger employer notices and follow-up by SSA/IRS (e.g., “no‑match” letters). The federal guidance says employers should verify and correct records (often within a suggested 60 days) and continue withholding/payroll obligations; penalties for repeated incorrect reporting may apply to employers or employees in some circumstances (e.g., $50 information‑reporting penalties cited in employer guidance) [1] [2] [3].
1. What the government notices say and what employers are told to do
The Social Security Administration began sending employer “no‑match” or Employer Correction Request letters when names and SSNs on Forms W‑2 do not match SSA records; those letters instruct employers to verify and correct the information (SSA suggests a 60‑day response window) and warns employers not to take adverse employment actions solely because of a mismatch [3] [4]. SSA and payroll advisers recommend using verification tools such as the Social Security Number Verification Service before filing and updating payroll only after the employee provides a corrected Social Security card [2] [3].
2. What happens to the withheld payroll taxes in practice
Available sources show that employers are required to withhold and remit payroll taxes even when a worker’s SSN is incorrect or mismatched; those withholdings are reported on W‑2s but, if the SSN/name pair does not match SSA records, the agency may not be able to credit earnings to the correct Social Security record [3] [1]. The Government Accountability Office observed that employment‑related identity fraud—wages reported under the wrong SSN—makes it harder for IRS to collect taxes properly and for SSA to manage benefit records [5].
3. Consequences for workers whose wages are reported to the wrong SSN
When wages are posted under a mismatched or false SSN, the worker whose identity is used may not see those earnings credited to their own Social Security earnings record; SSA says mismatches prevent proper crediting of payments and encourages correction so earnings will count toward future benefits [1] [3]. The GAO found evidence of many SSNs tied to suspicious wage reporting and underreported wages to taxpayers, underscoring the practical harm to benefit records when mismatches occur [5].
4. Penalties, employer liability, and enforcement posture
Employer guidance warns of potential information‑reporting penalties for filing incorrect taxpayer identification numbers; one legal summary mentions a possible $50 penalty on employers for each time incorrect information is provided, and a similar penalty may apply to employees who don’t furnish a correct SSN [1] [6]. At the same time, payroll vendors and legal advisers stress employers should not summarily fire or discriminate against employees identified on no‑match letters, because taking adverse actions could violate federal or state law [3] [7].
5. How the IRS treats withholding credits when an SSN/ITIN mismatch exists
Tax practitioners note the IRS may tentatively disallow credits for federal income tax withholding if there is an SSN/ITIN mismatch and may request documentation; resolving whether withheld amounts properly credit to a taxpayer can become an administrative decision by the IRS and may require taxpayers or employers to provide supporting documents [8]. The practical implication: an employee who used another person’s SSN or who files with an ITIN may face extra steps to get the withholding credited to the correct account [8].
6. Fraud, identity theft, and reporting pathways
The IRS and SSA recognize employment‑related identity fraud as a real problem: criminals or unauthorized workers may use stolen or false SSNs to get jobs, creating mismatches that complicate tax collection and benefit records [5]. The IRS provides guidance and notices (and recommends tools like IP PINs) for victims and has channels for businesses and payroll providers to report W‑2/SSN data theft so authorities can try to limit harm and fraud monetization [9] [10].
7. Practical steps for employers and affected workers
Authorities and payroll advisors recommend verifying SSNs at hire (SSNVS or asking to see the Social Security card), keeping records of solicitations for correct SSNs, meeting privately with employees identified in no‑match notices, correcting payroll and future filings once a valid SSN/card is produced, and not taking adverse employment actions solely because of a mismatch [2] [7] [3]. If identity theft or data breach occurred, the IRS and employers are advised to report to law enforcement and dedicated IRS channels so victims can be protected [10] [9].
Limitations and unresolved points
These sources describe administrative practices, notices, and risks but do not provide a single, exhaustive procedural flowchart for every situation (e.g., exact timeframes for IRS crediting of withheld taxes once a mismatch is fixed). Available sources do not lay out a definitive sequence for reclaiming mis‑credited wages across all agencies; instead, they document SSA/IRS guidance, potential penalties, and recommended employer‑employee remedies [1] [3] [8] [5].