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Recent federal changes are reshaping the way immigration enforcement intersects employment issues, posing new compliance risks for employers and plan sponsors. Two recent developments ramped up coordination among government agencies, including the Internal Revenue Service, to detect and deter unauthorized work and benefits, and shed light on what employers need to know.
IRS-ICE Information-Sharing Agreement
On April 7, the Internal Revenue Service (IRS) signed an agreement with Immigration and Customs Enforcement (ICE) to share select tax records for non-tax criminal investigations. This includes access to Individual Taxpayer Identification Numbers (ITINs), W-2 and 1099 forms, and employer tax filings. Although this data cannot be used for civil immigration or deportation proceedings, it may be used to investigate identity fraud, document falsification, or unauthorized employment. This agreement between the agencies marks a shift in IRS policy where as recently as 2023, the IRS took the position that it did not have the legal authority to share this type of data with the Department of Labor (DOL) for the purpose of finding missing retirement plan participants.
SSA “Ineligible Master File” Initiative
Just a day later, the Social Security Administration (SSA) announced that it will now use its “death master file” to flag noncitizens whose work authorization has lapsed or been revoked – rendering their Social Security numbers (SSNs) unusable for employment or financial purposes. This could affect employers who rely on Social Security numbers to verify benefit eligibility or process payroll-linked benefit contributions.
Together, these moves underscore a growing strategy of using once-siloed government databases to crack down on unauthorized employment – raising the compliance stakes for all employers.
What This Means for Plan Sponsors and Employers
Employers could face significant liability and operational disruption as these interagency efforts evolve.
- Increased SSA “No-Match” Letters: As SSA tightens data integrity efforts, employers may receive more letters flagging discrepancies between names and SSNs on wage reports. The notices do not imply wrongdoing but can create operational and legal complexity.
- Increased Scrutiny of ACA Filings: Discrepancies between Form 1095-C submissions and IRS/SSA data could draw audits or enforcement inquiries. Multiple ITIN-linked submissions or mismatched SSNs may flag a plan sponsor for review and introduce a greater risk for a worksite audit.
- ICE Raids and Warrants: Cross-referenced IRS and SSA data may be used to plan worksite raids or issue judicial warrants targeting high-risk locations. These actions may disrupt operations and draw media attention.
- Potential Criminal Charges: Employers found to have knowingly hired or facilitated unauthorized work may face prosecution for violations such as unlawful employment of unauthorized workers or filing false or fraudulent tax documents. While criminal charges against employers have historically been less common, this new IRS and SSA data-sharing initiative – along with the increased threat of prosecution under the new administration – adds pressure for employers to act cautiously and document compliance efforts.
Employer Action Items
- Audit employee eligibility and benefits systems.
Conduct a comprehensive review of employment eligibility documentation, enrollment data, ACA reporting, and payroll records. Ensure that SSNs used to determine benefit eligibility match SSA records and that no one is enrolled based on ITINs or questionable documentation. - Coordinate with HR, legal, and plan administrators.
Ensure that HR and benefits staff understand how to properly handle SSN mismatches and other eligibility red flags. Collaborate with outside counsel, especially if your systems show employees who have incomplete
I-9 records. - Develop a response strategy for SSA “no-match” and IRS letters.
Establish protocols for addressing government notices. Mishandling a “no-match” letter or failing to act on a discrepancy flagged in ACA reports could result in investigation or penalties. - Review the use of independent contractors and 1099 workers.
If your organization issues 1099s, especially those tied to ITINs, review the nature of the relationship and determine whether the individual is properly classified as an independent contractor. While your company may not verify the ITIN or SSN of a 1099 worker, there may be penalties if an employer is found to be using 1099 workers to avoid immigration compliance activities. - Establish a crisis response plan.
In the event of an ICE audit or enforcement action, have a rapid-response plan that includes legal counsel, compliance leads, and benefits administrators. Ensure you’re prepared to manage operational disruptions, employee communications, and benefit access issues in real time.
This information has been prepared for UBA by Fisher & Phillips LLP. It is general information and provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.
