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Employer has been notified of "invalid" SSNs


cheersmate

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A plan sponsor has been notified by Social Security that 2 of its employees have invalid SSNs. These 2 employees have worked for the plan sponsor for several years, W2s have been issued, and both are Plan Participants.  This recent notification has come as a surprise to the plan sponsor, given until now there has never been a notice of any kind. The plan sponsor asked each employee if the SSN being used was provided in error and if either has another SSN (either due to typo or ascertaining a valid SSN) - to which both said the SSN the plan sponsor has on record is correct and that they have filed tax returns... the plan sponsor is still trying to get to the bottom of this.

Qs: If either or both are in fact illegal aliens using invalid SSNs (stolen or otherwise), are they entitled to their plan accounts? If so, what taxpayer ID number would the plan need to report on 1099R when distributed, or would the Plan use the one on record currently even though it is known to be invalid? If not, is it a forfeiture or is there some other action necessary?

Thank you for any insight anyone can share on this matter.

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My understanding is the invalid SSN is a completely distinct issue from the right to the plan accounts.

Just because someone does not have a valid social doesn't mean they don't have a right to compensation or wages. There are lot of intertwining issues, but especially if there are deferrals (but even if only employer contributions), the money belongs to person the same as any other plan participant. 

Now if the IRS were to get awarded the accounts because of tax fraud and a court judgment, that would be entirely different. 

Similarly, if I find out someone's SSN isn't valid and I fire them, it doesn't mean I can withhold their final paycheck. If they worked and earned the money, it is theirs. 

As for what to use on a 1099-R, I would suggest getting a taxpayer ID from their home country if they do not have a SSN. And don't forget the higher possible tax withholding, and W-8BEN. 

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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An illegal alien is entitled to their account balance unless your plan some how excluded them.  I have never seen that provision and you would have had to factor the exclusion into the coverage test.  The is the law.

An illegal alien can get an ITIN for tax purposes.  They don't tend to do so as they fear the IRS is going to tell other parts of the government about them.  

You can search on this board there have been other threads on this board regarding this topic. before.

 

https://www.irs.gov/individuals/individual-taxpayer-identification-number

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4 minutes ago, ESOP Guy said:

Prior threads

https://benefitslink.com/boards/index.php?/topic/50562-illegal-alien-with-false-identification-in-profit-sharing-plan/

Thank you for this link... I did search before posting this, but by invalid SSN and nothing came up. I do appreciate all the help!

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