1. Depositing and Reporting withheld tax
Chapter 8
Depositing and Reporting withheld tax

2. 8.1 Employer Identification Numbers
To ensure all payments are credited to the correct employer, an EIN is assigned
How to get an EIN?
Application online – able to get and use EIN immediately
By Fax-TIN – EIN issued within 4 business days
By Phone – able to get and use EIN immediately
Paper form SS-4 – 4 to 5 weeks for receipt of EIN
If EIN not received in time for quarterly/annual filing, write “APPLIED FOR” in EIN space and date of application

3. 8.1 Employer Identification Numbers
Mergers, consolidations & reincorporation
Proper EIN to use after a corporate merger or acquisition depends on its characterization under the Internal Revenue Code.
If a reorganization, use the previously assigned EIN
A new EIN is required if a new company merges as a result of the reorganization if it does not qualify as a reorganization by IRS rules

4. 8.2 Depositing Withheld Income & Employment Taxes
Taxes are not necessarily paid when filing a return
Must deposit the taxes per the IRS’ assigned frequency
Payroll Tax Deposit Rules
Based on the look back period
Example 1: For calendar year 2016 the look back period is July 1, 2014 to June 30, 2015
Monthly
If total tax liability for the look back period equals $50,000 or less
Semiweekly
If total tax liability for the look back period exceeds $50,000
Payment of withheld federal income, SS, Medi as well as the ER’s share of SS & Medi and FUTA is handled differently from the payment of other federal taxes. Deposit taxes in a financial institution rather than with the return.
Total of tax liability of an employer’s four quarterly Forms 941 during the look back period

5. 8.2-1 Payroll Tax Deposit Rules
2016 Look back Period
2017 Look back Period
3rd qtr $12,000
4th qtr $12,000
1st qtr $12,000
2nd qtr $12,000
$48,000
Total employment tax liability
$48,000 < $50,000
= Monthly Depositor
3rd qtr $13,000
4th qtr $13,000
1st qtr $13,000
2nd qtr $13,000
$52,000
Total employment tax liability
$52,000 > $50,000
= Semi-Weekly Depositor

6. 8.2-1 Payroll Tax Deposit Rules
Nonpayroll withholding treated separately
Employers must also withhold federal income from “nonpayroll” payments it makes, including:
Reportable payments subject to backup withholding
Gambling winnings
Retirement pay for service in the Armed Forces
Pension, annuities, IRAs & other deferred income
These are all reported on Form 945 annually. They are not included on the quarterly 941.

7. 8.2-1 Payroll Tax Deposit Rules
Employers with an annual employment tax liability of $1,000 or less that are notified in writing by the IRS of their qualification for Employers’ Annual Federal Tax Program can pay their liability with a timely filed Form 944.
These employers are not required to deposit their employment tax liability under either monthly or semiweekly deposit rules.

8. 8.2-1 Payroll Tax Deposit Rules
New Employers
Classified as monthly depositors because they have no tax liability experience during the look back period OR until they accumulate more than $50,000. in tax liability during a look back period OR trigger the one-day rule
Look back period begins on first day of operations and ends on the next June 30.
Successor Employers
Successor company with the same EIN as predecessor company has the same deposit frequency as the predecessor.
Successor company with new EIN is considered a monthly depositor.

9. 8.2-1 Payroll Tax Deposit Rules
Railroad & Farm employers
File annual employment tax returns rather than quarterly
Look back period is the second calendar year preceding the current calendar year
Agricultural employers may have both farm and nonfarm employees
Will file both Form 943 and Form 941
Separate determinations for depositor status
Agricultural & Railroad Retirement Tax Act employers file annually & have a different look back period

10. 8.2-1 Payroll Tax Deposit Rules
Monthly Deposit Requirements
Accumulated tax liability for the calendar month
Must be paid by
The 15th of the following month

11. 8.2-1 Payroll Tax Deposit Rules
Semiweekly Deposit Requirements
Wages paid on Wednesday, Thursday & Friday
Must be paid by
The following Wednesday
Semiweekly Deposit Requirements
Wages paid on Saturday, Sunday, Monday & Tuesday
Must be paid by
The following Friday

12. 8.2-1 Payroll Tax Deposit Rules
One-day deposit rule
Accumulated tax liability reaches $100,000 on any day during a deposit period
Must be paid by
The close of the next business day
Monthly depositors threshold is only during the current month.
Semi-weekly depositors take into account only taxes accumulated during the W – F or Sat – Tu semiweekly periods. Exceptions to this would be if wages are paid on two days in different quarters during the semiweekly period.

13. 8.2-1 Payroll Tax Deposit Rules
One – day Deposit Rule
If accumulated employment tax liability reaches $100,000 on any day during a monthly or semiweekly deposit period, the taxes must be deposited by the close of the next business day
Monthly depositors then become a semiweekly depositor for the remainder of the current calendar year and the entire next calendar year.

14. 8.2-1 Payroll Tax Deposit Rules
Quarterly “de minimis” deposit rule
Accumulated tax liability of less than $2,500 for any quarter can be deposited according to the employer’s depositor status or pay with their Form 941
This helps small employers that file Form 941 and have an unexpected increase in their deposit liability for a quarter to avoid potential failure-to-deposit penalties.
Safe harbor helps small employers avoid potential failure to deposit penalties when they have an unexpected increase in their deposit liability for a quarter.

15. 8.2-1 Payroll Tax Deposit Rules
Form 944 – Annual employment tax liability reporting for small employers
Employment tax liability of $1,000 or less qualifies small employers for this annual filing.
Employers are notified by the IRS of their qualification for the Employers’ Annual Federal Tax Program (EAFTP)
Tax liability is paid with a timely filed Form 944
Not held to the monthly or semiweekly depositor statuses
If liability of $1,000 is exceeded, employer is no longer qualified; however, will still file Form 944 for that calendar year & Form 941 for the succeeding years
Additionally,
Quarterly de minimis rule applies if 944 filers exceed $1,000 but do not exceed $2,500 in any quarter & liability is deposited by the end of the month following the end of the quarter for each quarter of the calendar year.

16. 8.2-1 Payroll Tax Deposit Rules
Saturday, Sunday and holiday extension
If the due date of the deposit is not a business day (Saturday, Sunday, or a federal legal holiday), the deposit is due on the very next banking day
Semiweekly depositors are guaranteed at least 3 business days after the last day of the semiweekly period to make their deposit
*If any of the 3 days is not a business day, the employer has an additional day to deposit

17. 8.2-1 Payroll Tax Deposit Rules
Shortfall rule
IRS allows a “safe harbor” shortfall so employers are not penalized for depositing a small amount less than the entire amount of the deposit obligation and not be penalized
Obligation is satisfied if the shortfall is no more than the greater of $100 or 2% of the entire amount due
All deposits must be made timely & shortfall is deposited by the appropriate make-up date.
Monthly depositors – shortfall must be deposited by the 941 due date
Semiweekly depositors – shortfall must be deposited by the 1st Wednesday or Friday occurring on or after the 15th of the month after the month during which the original deposit was due

18. 8.2-1 Payroll Tax Deposit Rules
Timeliness of deposits
Generally, deposits are considered timely by the IRS if received via EFTPS and the amount is withdrawn from the employer’s account on or before the due date

19. 8.2-2 How to Deposit Payroll Taxes
Electronic Deposits have now replaced FTD coupons
A provision of the North American Free Trade Implementation Act (NAFTA) amended the IRC & requires the implementation of an Electronic Federal Tax Payment System (EFTPS) for the collection of federal depository taxes.
Exception: Does not apply to employers with total employment liability of less than $2,500. Payment is made with Form 941 or 944.

20. 8.2-2 How to Deposit Payroll Taxes
EFTPS requirements
EFTPS is a must for all depository taxes
Once an employer becomes subject to the EFT requirement, it applies to all federal taxes the employer is required to deposit under IRC Section 6302
Employers that are required to deposit electronically must use EFTPS
Enrollment:
New business taxpayers are pre-enrolled
Newly required taxpayers enroll with Form 9779, Business Enrollment form for EFTPS or online at
Enrollment verifies company info & notifies the IRS of the deposit method selected
EFTPS-Direct (ACH Debit)
EFTPS-Through a Financial Institution (ACH Credit)
Once triggered, EFTPS is a must for all depository taxes. Once an ER becomes subject to the EFT requirement, it applies to all federal taxes the employer is required to deposit under IRC Section Includes, corp income, est income & excise tax, FUTA.

21. 8.2-3 Penalties for Failure to Deposit on Time
2% x undeposited amount for 1-5 days
5% x undeposited amount for 6-15 days
10% x undeposited amount for > 15 days
15% x undeposited amount if not paid within 10 days after the ER receives its first IRS delinquency notice
The IRS will also assess the 10% penalty if payroll taxes are deposited or paid by a method other than EFTPS or the Electronic Tax Application unless payment with the employer’s tax return is appropriate.
Employers contracted with a payroll service provider to submit employment tax returns and make tax deposits are still liable for penalties when the PSP failed to submit the returns or make the deposits.
The contract does not relieve the employer of their obligation to file timely returns and make timely deposits.

22. 8.2-3 Penalties for Failure to Deposit on Time
Employer Relief
IRS allows for instances to waive penalties for late deposits:
IRS may waive the failure-to-deposit penalty for an employer’s inadvertent failure to make a deposit with certain criteria
IRS may also waive the failure-to-deposit penalty if the employer can show reasonable cause
Criteria:
ER net worth is no more than $7 million
the F 2 D occurs during the 1st quarter the ER is required to deposit employment taxes or the 1st deposit after the ER is required to change deposit frequency
and the return for the tax (Form 941) is filed timely

23. 8.2-3 Penalties for Failure to Deposit on Time
How the IRS applies employer tax deposits
Require IRS to apply deposits to the most recent period within the tax period to which the deposit relates
Shortfall rules: The payment is treated as a liability for a deposit period IMMEDIATELY BEFORE the shortfall make-up date and after the end of any other deposit period ending before the shortfall make-up date
Penalty notices for specific tax period – can contact IRS within 90 days and redesignate where the deposit is to be applied.

24. 8.2-3 Penalties for Failure to Deposit on Time
Redesignating estimated tax payments as employment tax deposits
If employer determines its corporate income tax liability for the current tax year will be less than the amount of estimated income tax payments already made, the employer can redesignate some of the estimated income tax it has paid as employment tax deposits

25. 8.2-3 Penalties for Failure to Deposit on Time
Employer can avoid an averaged failure-to-deposit penalty by:
Monthly payer – verify monthly liability section of Form 941 is completed properly
Semiweekly payer – verify the Schedule B is properly completed (tax LIABILITY dates are to be used instead of tax PAYMENT dates)
If employer is a semiweekly payer per IRS rules and does not complete a Schedule B, the penalty is computed by taking the total adjusted tax liability and distributing it equally throughout the period

26. 8.2-3 Penalties for Failure to Deposit on Time
IRS can … and WILL … apply a 100% penalty for not withholding and paying taxes
Known as the “Trust Fund Recovery Penalty” or the “100% Penalty”
Responsible person must have acted willfully in not withholding and paying over withheld income and employment taxes
Notice must be given at least 60 days before IRS can issue a notice & demand for payment of penalty
The liability for the penalty can be shared
PEO’s can face trust fund penalties as well

27. 8.2-3 Penalties for Failure to Deposit on Time
Criminal Penalties can also be assessed
If found guilty, the person(s) are guilty of a felony and can be fined up to $10,000. and/or imprisoned for up to 5 years
Penalty and interest notices must be detailed – part of IRS Restructuring & Reform Act of 1998
Include name of penalty
IRC section under which it is imposed
Computation of the penalty
If interest is imposed, must include IRC section and calculation of the interest

28. 8.3-1 Form 941 Who Must File Form 941
Employers exempt from filing Form 941
Seasonal employers that do not pay wages regularly
Businesses that withhold federal income tax from only nonpayroll items
Employers that report only withheld taxes on domestic workers
Employers that report only wages for employees in U.S. territories
Agricultural employers
Employers that have an annual employment tax liability of no more that $1,000 & file Form 944

29. 8.3-1 Form 941 Who Must File Form 941
Business Reorganizations
If an employer sells or transfers its business, a separate Form 941 must be filed by both the previous and current owners
Each must only report the wages it paid and taxes it withheld
Statutory merger or consolidation of two businesses
Surviving corporation must file Form 941 for the quarter during which the change took place, reporting for both companies
The reporting results in discrepancies between the amounts shown on the surviving corporation’s Forms W-2 and 941 for the year of the merger or consolidation
Surviving corporation should file Schedule D (Form 941) Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations with final 941 of year

30. 8.3-1 Form 941 Completing the Form
Form 941 is scannable
Created so that it can be scanned by IRS
Scanning requires conformity
Substitutes that follow the format will be acceptable
Forms should not be submitted to the IRS for specific approval
Software developers and form producers send in a PDF format to assist the IRS in preparing to scan the forms
The IRS no longer mails out business tax packages to employers. To get forms, go to
Easier, faster & more accurate processing
IRS publishes specifications for producing substitutes for both Form 941 & Sch B

31. 8.3-1 Form 941 Completing the Form
Completing Form 941
12-point Courier font
Omit dollar signs
Enter dollars to the left of the pre-printed decimal points & cents to the right
Use of commas is optional
Leave blank any data field with a value of zero
Enter negative amounts using a minus sign, if possible, otherwise use parentheses
Enter the employer’s name & EIN on all pages & attachments
Staple multiple sheets in the upper left corner for filing

32. 8.3-1 Form 941 Completing the Form
Form must have employer’s signature
Owner, if sole prop
Principal corporate officer, if corporation or LLC (treated as a corp)
Authorized member or partner of an unincorporated association or partnership (including LLC treated as a partnership)
Owner of a single member LLC
A fiduciary if the employer is a trust or estate

33. 8.3-1 Form 941 Completing the Form
Forms signed by agents
Agent obtains authorization from the IRS by having the employer designate the agent on Form 2678, Employer / Payer Appointment of Agent
Attorney, accountant, other representative or employee must obtain a proper power of attorney by completing Form 2848, Power of Attorney and Declaration of Representative

34. 8.3-1 Form 941 Completing the Form
Third party can discuss form with IRS
Employer must check the “Yes” box in Part 4 of Form 941 and
Enter the name, phone number, & 5-digit personal identification number of the third party
This authorizes the designee to:
Provide the IRS with any missing information from the Form 941
Call the IRS for any information about processing
Respond to the IRS concerning IRS notices that the employer has shared with the designee about math errors on the form and return preparation

35. 8.3-1 Form 941 Completing the Form
Third Party Designee is not Authorized:
To receive a refund check
Bind the employer to anything or otherwise represent the employer
Designation expires one year from the due date of the Form 941
Can be revoked beforehand by either the employer or designee

36. 8.3-1 Form 941 Completing the Form
Alternative signature methods
1998 – IRS Restructuring and Reform Act – Electronic signatures
2005 – Facsimile signatures allowed
This procedure is primarily a convenience for payroll service providers
New Employers
Yet to be assigned an EIN should type the words “Applied For” and the date of the application in the EIN space provided on the form

37. 8.3-1 Form 941 Completing the Form
Employers going out of business
Check the box on Line 15 when completing its last Form 941 & enter the last date on which wages were paid
Attach a statement showing the address where the employer’s records will be kept, name of the person keeping the records, & if business was sold, the name & address of the new owner

38. 8.3-1 Form 941 Completing the Form
Claiming the COBRA credit on Form 941
Tax periods beginning before December 31, 2013, credit for COBRA premium assistance payments cannot be claimed on Form 941.
It must be claimed on Form 941-X, after Form 941 is filed without claiming the credit.

39. 8.3-1 Form 941 Completing the Form
Payments made with Form 941
For employers that qualify with employment tax liability of less than $2,500 in the current or preceding quarter
Include Form 941-V, Form 941 Payment Voucher with the employer’s Form 941 and include the following:
EIN or “Applied For” if unassigned
Darken the oval for the quarter
Employer’s name & address
Amount paid
These employers cannot take advantage of the 10-day extension granted to employers that have deposited their entire tax liability on time throughout the quarter

40. 8.3-1 Form 941 Completing the Form
Credit or debit card payments
Payments can be made over the phone or Internet
Services providers will charge a convenience fee based on the amount of the payment.
If filing Form 941 via e-file, you can e-pay balance due using a tax preparation software or through a tax professional. This payment is known as EFW – Electronic Funds Withdrawal.
EFTPS
If employer pays balance through ETPS, Form 941 should be sent to the address for forms filed without a payment.

41. 8.3-2 Form 941 When & Where to File Form 941
FORM 941 FILING DEADLINES
QUARTER
QUARTER ENDS
941 DUE DATE
AUTOMATIC EXTENSION
JAN – MAR
MARCH 31
APRIL 30
MAY 10
APR – JUNE
JUNE 30
JULY 31
AUGUST 10
JULY – SEPT
SEPTEMBER 30
OCTOBER 31
NOVEMBER 10
OCT – DEC
DECEMBER 31
JANUARY 31
FEBRUARY 10
If the Form 941 due date falls on a Saturday, Sunday or legal FEDERAL holiday, the due date becomes the next business day.

42. 8.3-2 Form 941 Completing the Form
Mailed Forms 941
Considered filed on the date of the postmark on the envelope by the USPS and can be timely filed even if received after the due date
“Post Mark Rule” – applicable for IRS designated PDS (Private Delivery Service)
Important to retain certified mail receipts to serve as proof of timely filing

43. 8.3-2 Form 941 Completing the Form
Proof of mailing vs proof of delivery
Certified or registered mail are the only way to prove mailing & support the presumption that a document has been delivered even if the IRS shows no record of receipt
IRS provides addresses for mailing paper Form 941 in the Form 941 instructions

44. 8.3-2 Form 941 Completing the Form
When completing the Form 941 make sure proper Schedules are included
Schedule B – Semiweekly depositors
Schedule R – Allocation schedule for Aggregate Form 941 filers

45. 8.3-6 IRS Advise on Avoiding Form 941 Errors
IRS has offered employers advice to help them avoid the most common errors made when completing Form 941.
Report separately the taxable social security wages and social security tax on Line 5a in Columns 1 and 2, the taxable social security tips and social security on Line 5b in Columns 1 and 2, and additional Medicare tax wage, tips, and taxes on Line 5d in Columns 1 and 2.
Make certain the employer’s name and other business identifying information is entered correctly at the top of page 1, and that the employer’s name and EIN are entered a the top of page 2.
Verify that Line 10 is the sum of Line 6 through 9.

46. 8.4 Form 945
IRS developed Form 945, Annual Return of Withheld Federal Income Tax and removed all nonpayroll items from Form 941
This was done to reduce the complexity of Form 941 & ease the reconciliation among Forms 941, W-2 & W-3
Form 945, businesses report amounts withheld throughout the year from nonpayroll items
Also report total deposits of these nonpayroll withheld taxes & any amount withheld but not yet deposited for the form is completed
Nonpayroll items such as pensions, annuities, gambling winnings, etc, as well as backup withholding.

47. When & where to file Form 945?
Due on January 31st of the following year
Extension to February 10th if all deposits are made timely throughout the year
Mailing address is provided in the Form 945 instructions

48. Monthly reporting for Delinquent Employers
8.5-1 Form 941-M
Monthly reporting for Delinquent Employers
Effective January 1, 2012, the IRS no longer requires employers that continuously fail to withhold or deposit taxes or file returns on time to report employment taxes monthly rather than quarterly, using Form 941-M, Employer’s Monthly Federal Tax Return.
The IRS declared the monthly filing and special deposit procedures obsolete and said employers who had been required to use those procedures must file Form 941.

49. 8.5-2 Form 941-PR & 941-SS
Form 941-PR is filed by employers with employees in:
Puerto Rico
Form 941-SS is filed by employers with employees in:
American Samoa
Guam
Northern Mariana Islands
Virgin Islands
Each of these forms is used to report an employer’s liability for social security & Medicare taxes, but not federal income tax withholding
Form 941 must also be filed to report federal income tax withholding

50. 8.5-3 Domestic Employees
Individuals hiring domestic employees must report & pay both employer & employee share of social security & Medicare taxes on wages it pays these employees on their personal tax return, Form 1040, on Schedule H
Threshold requirement is $1,900 per year for 2015
Employer must withhold, report & pay federal income tax if the employee requests it.
Household employers are required to make payments of withheld taxes throughout the year.
Sole prop who file Form 941 for business employees may report the household employee wages on Form 941 as well if the $1,900 threshold is met

51. 8.5-4 Form 943 – Annual Reporting by Agricultural Employers
Employers of farmworkers
Must withhold federal income tax & withhold and pay social security & Medicare taxes on farmworker wages
Annually report the wages paid & taxes withheld on Form 943
A monthly summary of tax liability is reported on Form 943 Lines A-L with the total being entered on Line M
Completed by monthly depositors
Semiweekly depositors complete Form 943-A, Agricultural Employer’s Record of Federal Tax Liability
Also monthly depositors that accumulate at least $100,000 in payroll tax liability
When & where to file?
Due date is January 31 of the following year
Same purpose as form 941
943-A completed in same way as Sch B

52. 8.5-5 Form 944 – Annual Reporting by Small Employers
2006 – Employers’ Annual Federal Tax Program (Form 944) (EAFTP) was developed by the IRS
Benefited small employers by reducing the filing burden
2008 – Employers were notified by the IRS if they were eligible for the program
Required to file Form 944 until they were no longer eligible
2009 – IRS changed the rules to make EAFTP voluntary
Annual employment liability of $1,000 or less qualifies employers for eligibility

53. 8.5-5 Form 944 – Annual Reporting by Small Employers
Opting out of the Program - In 2010, employers who have been notified of their eligibility to file form 944 in 2009 or earlier must do so unless they opt out of the program by calling or writing IRS and getting written confirmation that their filing requirement has been changed to Form 941
Call by April 1
Postmarked written request by March 15
Opting into the program – In 2016, employers that believe they are eligible to file Form 944 and wish to do must request notification of their eligibility from the IRS.

54. 8.5-5 Form 944 – Annual Reporting by Small Employers
Minimal differences between the 944 & the 941
No question regarding the number of employees on the payroll on any specified date
If total employment tax for the year is $2,500 or more, each month’s liability must be indicated in Part 2
There is no check box for seasonal employers

55. 8.5-5 Form 944 – Annual Reporting by Small Employers
When & where to file?
Due date is January 31 of the following year
Qualifies for 10-day automatic extension if all deposits have been made on time
Correcting Form 944
Corrections should be made on Form 944-X, Adjusted Employer’s Annual Federal Tax Return or Claim for Refund

56. 8.6 Making Corrections / Adjustments
Form 941-X used to correct the following:
Wages, tips & other compensation
Income tax withheld from compensation
Taxable social security wages
Taxable social security tips
Taxable Medicare wages and tips
Advanced EIC payments made to employees
Not used to correct number of employees reported
In 2009 & beyond, adjustments are made on Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.

57. 8.6 Making Corrections / Adjustments
Form 941-X due dates are dependent upon when the error was discovered & if taxes are over- or under-reported
Underreported taxes discovered in:
Q1 due by April 30
Q2 due by July 31
Q3 due by October 31
Q4 due by January 31
The final deadline for filing is 3 years from the date the original Form 941 was filed
Overreported taxes final deadline is 3 years from the date the original Form 941 was filed or 2 years from the date you paid the tax reported on Form 941
Can request funds in two different ways:
Credit to next quarter liability, or
Refund mailed to the employer
In 2009 & beyond, adjustments are made on Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.

58. 8.6 Making Corrections / Adjustments
Form 843, Claim for Refund and Request for Abatement
Prior to 2009, this form was filed with Form 941c to request a refund of overpaid taxes
In 2009 & beyond, Form 941-X replaces both forms
However, Form 843 should still be used to request a refund or abatement of assessed interest or penalties

59. 8.7 Penalties for Late Reporting and Paying Tax
Late filing of employment tax returns results in an “addition to tax”
5% of the tax shown on the return for each month the return is late up to the maximum of 25% (higher % if fraudulent)
Failure to pay employment taxes results in an “addition to tax”
Additions to tax, civil penalties & interest are not the only penalties employers face
Criminal fines & imprisonment can also be enforced

60. 8.8-1 Information Reporting for Employees
Employers must provide W-2s
IRC requires a Form W-2 to be provided by any employer engaged in a trade or business that pays compensation to an employee for work performed, even if the employee is not paid in cash
IRC requires Form W-2 if the employer withheld federal income tax from the employee or would have done so if the employee had claimed no more than one withholding allowance
IRC requires Form W-2 reporting for all wages, as defined for federal income tax withholding purposes and for all noncash compensation provided to an employee that is not subject to withholding, if the total of the wages and the noncash compensation is at least $600 in a calendar year

61. 8.8-1 Information Reporting for Employees
Surviving corporation after a merger or consolidation issues W-2’s for all employees during the year
Successorship options:
Standard: Predecessor makes final payment of wages & reports the wages on Form W-2; successor reports only the wages it pays
Alternate: Successor provides Forms W-2 for all wages & taxes from both parties; predecessor only issues Forms W-2 for employees who did not work for the successor after the acquisition – Requires each company to file Schedule D to explain discrepancies between their Forms 941 and W-2

62. 8.8-2 When & Where to Furnish Form W-2
Copy A, Form W-2 is an information return & must be sent to the SSA
Beginning in 2016 Forms W-2 filed in 2017, the due date is Jan 31 after the year to which the form applies.
Copies B, C & 2, Form W-2 are the employee’s copies; these information statements must be sent to the employee by January 31 of the following year
Copy B – Employee Federal copy
Copy C – Employee’s Records
Copy 2 – Employee State or Local copy

63. 8.8-2 Information Reporting for Employees
Employer can provide copies electronically with the employee’s consent
Employer must provide the employee with a clear statement containing the required disclosures
Electronic copy must contain all the required information as a substitute statement
Must be accessible by January 31
Employee must be notified by January 31 the electronic copy is available
Employer must maintain access to the electronic copy through October 15 of the following year

64. 8.8-4 Information Reporting for Employees
Substitute Forms W-2 are acceptable as long as they meet IRS requirements & maintain the core information
8.8-5 Miscellaneous Form W-2 Issues
Hyphenation – Employer EIN & Employee SSN must contain hyphens
Dollar amounts – Entered without commas or dollar signs, but with decimal points & cents portion shown
Electronic reporting – Employers filing 250 or more Forms W-2 for a calendar year are required to file them electronically

65. 8.9 Information Reporting for Employers to SSA
Providing Wage & Tax Info to the SSA – Form W-3
If filing paper W-2 (Copy A) with the SSA, Form W-3, Transmittal of Wage and Tax Statements
Form W-3 contains totals of the amounts reported on the employer’s W-2 forms, acting as a “reconciliation” of those forms
Form W-3 not for electronic filers; employers that file electronically do not file a transmittal document

66. 8.9-1 Information Reporting for Employers to SSA
When and where to file Form W-3?
Due date for filing is the same as Copy A of Form W-2 with SSA – last day of February
Mailed with all Copy A Forms W-2
W-2c consists of six parts, same as the W-2
Copy A of Form W-2c must be sent to the SSA along with Form W-3c which totals the information from all the W-2c forms being submitted
Electronic filing requirement applies only for the immediate prior year

67. 8.11 The Reconciliation Process for Employers
With the differing aspects to the tax collection, payment & reporting process – it is imperative that employers keep track of each step and its relationship to the others
To help prevent “out-of-balance” conditions and reduce their confrontations with federal and state tax agencies, employers must periodically “reconcile” their wage and tax information

68. 8.11 The Reconciliation Process for Employers
If an employer’s totals from its four quarterly Forms 941 do not agree with the totals from its Forms W-2 the IRS or SSA will inquire as to why & expect corrections to be made
These amounts include:
Social security wages
Social security tips
Medicare wages and tips

69. 8.12 Information Returns for 1099 Series
Pension and Retirement Plan Distributions – Form 1099-R
Payers who make distributions of retirement income must report those payments and any amount withheld for federal income tax on From 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance contracts, etc
Distributions from all types of retirement plans must be reported on Form 1099-R
Must report taxable and nontaxable amounts distributed; gross distribution is entered in Box 1, taxable amount in Box 2a, & the nontaxable amount in Box 5
Reportable payments include governmental 457b plans, payments of matured annuity, endowment & life insurance contracts.
Periodic and lump sum distributions must be reported. Death benefits paid by employers that are paid as part of a qualified pension, profit-sharing or retirement plan.

70. 8.12 Information Returns for 1099 Series
Pension and Retirement Plan Distributions – Form 1099-R
Determining Taxable & Nontaxable amounts:
All employee contributions to a qualified retirement plan, as well as employee pre-tax contributions plus the earnings on all plan contributions are included in the taxable amount of a distribution
The nontaxable amount is the portion of the distribution attributable to employee after-tax contributions, which were already taxed as wages before the contribution was made

71. 8.12 Information Returns for 1099 Series
Direct rollovers:
Payers making a direct rollover of a plan distribution must report the amount distributed on Form 1099-R as it would any other distribution
The payer must also add a distribution code in Box 7 identifying the distribution as a direct rollover
Filing form 1099-R
Copies B, C and 2 of Form 1099-R must be sent to the payee by January 31 of the year after the year during which the distributions were made
Paper Copy A due by February 28, with transmittal Form 1096
Electronic Copy A due by March 31
Electronic filing is required if filing 250 or more Forms 1099-R

72. 8.13 Penalties for Incorrect or Late Information Returns & Statements
Failure to File Information returns
Penalties are assessed against employers or payers that file information returns with the IRS or SSA:
After the due date “Failure to file timely”
Incorrect/Incomplete Info “Failure to file correct information”
The severity of the penalty generally depends on how late the return is filed or how late the correct or complete info is provided
Willful failures bring higher penalties
Payers can be sued for filing fraudulent returns
Agency allows for a small number of incorrect or incomplete returns corrected at no cost
Insignificant errors are not penalized
No penalty for errors due to reasonable cause

73. 8.13 Penalties for Incorrect or Late Information Statements
Failure to provide Forms W-2 to employees
$50 per statement if the failure to provide a complete and correct statement is corrected within 30 days after the due date, with a maximum penalty of $532,000 a year ($186,000 for small business)
$100 per statement if the failure to provide a complete and correct statement is corrected more than 30 days after the due date but by August 1 of the same year the statement is due, with a maximum penalty of $1,596,500 a year ($532,000 for small businesses)
$100 per statement if the failure to provide a complete and correct statement is not corrected by August 1, with a maximum penalty of $3,193,000 ($1,064,000 for small businesses)

74. 8.14 Electronic Reporting Requirements
Employers that file 250 or more Forms W-2 , Copy A must file them electronically
Same applies to 1099 filing
250-threshold applies to each type of form separately, not in total
Forms W-2c, effective in 2007, IRS requires file 250 or more during a calendar year to be filed electronically with the SSA, only applies to Forms W-2 corrected for the immediate prior year

75. 8.14 Electronic Reporting Requirements
Electronic wage reporting over the Internet
Electronic Forms W-2 are filed over the Internet through the SSA’s Business Services Online (BSO)
Can be used to file Forms W-2 from the third week of December through the end of the filing season (March 31)
Employers can fill in and submit W-2s/W-3s and W-2cs/W-3sc online
This encourages small employers to submit online without incurring programming costs
Electronic Forms 1099 are filed with the IRS through the Filing Information Returns Electronically (FIRE) system at

76. 8.14 Electronic Reporting Requirements
Employment tax e-file system for Forms 940, 941 & 944
Allows electronic return originators (EROs) to offer their clients electronic employment tax filing
Features:
Filing options, flexible filing, explicit error conditions, instant acknowledgements, integrated payment option, electronic signature process
Who can participate?
EROs, Reporting agents, third party transmitters, software developers, online filing providers

77. 8.15 Reporting “Special Wage Payments” to the SSA
Special Wage Payments refer to payments made by an employer to an employee or a former employee that the employee earned in a prior year
These payments significantly impact retired employees unless the SSA is notified about such payments; benefits can be reduced when the annual earnings test is applied
However, wages or payments received in one year but earned in a previous year are not counted under the “annual earnings test”

78. 8.15 Reporting “Special Wage Payments” to the SSA
Examples of special wage payments
Bonuses
Accumulated vacation or sick pay
Severance pay
Back pay
Sales commissions
Stock options
Payments on account of retirement, or deferred compensation reported on a Form W-2 for one year but earned in a prior year

79. 8.15 Reporting “Special Wage Payments” to the SSA
Reporting requirements:
Guidance for reporting special wage payments can be found in IRS Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration
Can report electronically through SSA’s Business Services Online (BSO)
A paper listing can be used to report special wage payments made to several employees. The format for submission is in Publication 957

80. Questions