Letter 98-C: SSA-CAWR: W-2s SSA could not reconcile to your Forms 94X; penalty proposed

What Letter 98-C is

The opening letter of the SSA-CAWR program, the penalty side of Combined Annual Wage Reporting (IRM 4.19.22.2(1), July 2, 2025). SSA has already written twice (SSA-L-94-SM and SSA-L-96-SM) about W-2s it could not reconcile; the IRS letter follows two to three years after the W-2s were due (IRM 4.19.4.3.1(1), 4.19.4.3.1.4(5), June 11, 2025). It is mass generated "at a determined volume per week ... up to and including cycle 33" and "automatically calculates (through electronic means) the IRC 6721(e) penalty," 10 percent of the larger Social Security or Medicare wage gap, with no maximum (IRM 4.19.4.2.14, 4.19.4.7.1(2), 4.19.4.3.1.1).

The deadline

45 days. No reply by the 11-cycle suspense: status 91 posts and the penalty assesses automatically (IRM 4.19.4.3.1(5)).

What to do

Reply in writing, by mail or fax, with an explanation and either the W-2s (copies or a listing with employee name, SSN, wages, tips and withholding), proof of timely filing (W-3, non-Copy-A W-2s and a dated return receipt), or a signed 941-X. Never send a payment alone: "no correspondence attached" is assessed as intentional disregard (IRM 4.19.4.3(9)). Ask for a 30-day suspension if you need it (IRM 4.19.4.3.29). First Time Abate does not apply; reasonable cause must address the whole period from the due date to your reply (IRM 4.19.4.3.1(1) Note, 4.19.4.3.1.4(5)).

The SSA side of CAWR

Employers report wages twice: on Forms W-2 to the Social Security Administration, which posts them to workers' earnings records, and on Forms 941, 943, 944 or Schedule H to the IRS. Combined Annual Wage Reporting reconciles the two. SSA runs the first pass, and when the W-2s it received do not account for the wages on the employment tax returns (fewer W-2s than the 941s imply, or W-2s that could not be posted because the names and SSNs did not match), it writes to the employer twice asking for the missing or corrected forms. Employers who do not respond are referred to the IRS, and Letter 98-C is the result, arriving two to three years after the W-2s were due. Because the missing W-2s are information returns, the IRS proposes the IRC 6721 penalty for failing to file them, and in the CAWR context that penalty is computed as 10 percent of the larger of the Social Security or Medicare wage discrepancy, with no annual maximum. The letter is machine generated in bulk and the penalty assesses automatically if the 45 days pass with no reply.

What a reply has to contain

The reply has to resolve the discrepancy, not just acknowledge it, and it has to be in writing. If the W-2s were filed and SSA could not post them, send proof: the W-3, copies of the W-2s (any copy but Copy A), and the dated transmittal or return receipt. If they were never filed, file them now with SSA and send the IRS a listing with each employee's name, SSN, wages, tips and withholding, so the examiner can match the totals. If the 941s were wrong rather than the W-2s, file signed 941-Xs and say so. If the discrepancy comes from a third-party payer (a PEO, a predecessor in a merger, a sick-pay provider), identify them and attach the agreement. Never send a payment by itself; a payment with no explanation is treated as agreement with intentional disregard. First Time Abate does not apply to CAWR penalties, and a reasonable-cause statement must account for the whole period from the original due date to the day you replied, including why two SSA letters went unanswered. Ask for a 30-day suspension in writing if you need one. The CAWR guide walks through the reconciliation, the CAWR penalty estimator computes the exposure, and the 98-C and 99-C reply template and reasonable-cause statement are built for this letter.

Questions about Letter 98-C

Have a different notice? The IRS notice decoder lists all 77 in the order they tend to arrive.