Common W2Cs: Can They Be Avoided?

1. Common W2Cs: Can They Be Avoided Becky Harshberger, Danny Tomasello and Mindy Mayo 10/13/2017

2. Becky Harshberger –VP, Payroll Tax, Entertainment Partners Considered an expert in Payroll Taxation, Becky has provided Tax guidance for US employees working on motion picture and television productions in both the US and around the globe at Entertainment Partners. She is responsible for employment tax and information tax processing, reporting, systems upgrades and legislative changes. A member of APA’s National Speakers Bureau she also Co-Chairs the Government Affairs subcommittee focused on IRS issues. From 2012 through 2014, she served as Chair, Employees Benefits and Payroll Subgroup, for the IRS Information Reporting Program Advisory Committee (IRPAC). In May of 2014, she was award the APA Meritorious Service Award for her contributions to the advancement of the Payroll Profession. A Certified Payroll Professional since 1999, she has taught the Greater Los Angeles Chapter CPP prep course every summer since 2000. When not working, Becky enjoys yoga, running, gardening and cooking (and eating!). bharshberger@ep.com (818) 955-6016

3. Mindy Mayo – Principal Human Capital Tax Mindy specializes in leading and advising organizations in the areas of human capital taxation, including financial and operational risk management, process improvement, and strategic management. She is skilled at representing clients before state and federal agencies during employment tax audits or controversy. Mindy is an accomplished public speaker and has achieved broad industry recognition for strategic thought leadership on various human capital taxation matters. mindy.mayo@ryan.com 408.655.6214

4. Danny Tomasello – Account Executive, CIC Plus In 2001, Danny began his career in payroll technology sales when IRS regulations were formed to allow for electronic distribution of W-2s (Originals, Reissues & W-2Cs). Working with hundreds of organizations across the country that process between 1,000 and 500,000 W-2s has given Danny a great appreciation for the pressures that anyone reading this bio feels during year-end, particularly at end of January when accuracy and timeliness are most critical. Danny’s personal goal at CIC Plus is to establish long term relationships built on trust. He also likes to have fun with colleagues, as pictured here with lead implementation specialist, Jason Kidwell (aka Captain QMS). dannyt@cicplus.com 530-219-8779

5. Agenda • Amended Returns • Form 941X • Interest and penalty free adjustments • Distribution of Employee Copies and EFW2C • Common W2C • State Amendments

6. Pop Quiz #1

7. Amended Returns Answer:

8. Amended Returns • How often to file • Is there a deminimis? • Which form do you use? • Form 941X • Underpayments and overpayments are filed on Form 941X • Form 843 • Claims for refund should be filed on Form 843 • How do you file W2Cs • Employers and submitters should consider W-2c online because it allows them to complete up to five Forms W-2c on the computer, electronically submit them to the SSA, and print copies suitable for distribution to employees. No special paper or software is needed.

9. Amended Returns • BSO is a suite of Internet services for business and employers who exchange information with the SSA. A one-time registration is required (http://www.ssa/gov/employer/bsohbnew.htm). • Registered users can (1) submit W-2 wage files and W-2c files to the SSA, (2) create, save, print, and submit Forms W-2 and Forms W-2c online, (3) view status, error, and notice information for W-2 and W-2c data, (4) acknowledge notice from the SSA asking for the data to be re-submitted, and (5) request a one-time 15-day extension to re-submit data.

10. Amended Returns • To sign up for BSO • To register forPassword: • Go to http://www.social security.gov/bso/bsowelcome.htm. • Select "Registration" and follow the prompts. • The SSA issues a user ID and then you create a password. You then request the services needed and enter your employer’s information. Once the online application is complete, you receive a letter and your employer (officer) will receive your activation code which grants you access. • For help registering or annual wage reporting, call: 1-800-772-6270 or 1-410-965-4242. For technical questions, call: 1-888-772-2970, fax: 1-410-597-0237, or E-mail bso.support@ssa.gov

11. Amended Returns • Overcollection • If you withhold more than the proper amount of tax during a quarter and before Form 941 is filed, you need not report the excess on Form 941 if you: • repay the amount of the overcollection to the employee before filing Form 941 for the quarter and before the end of the calendar year, and • secure a written receipt from the employee showing the date and amount of the repayment. The receipt must be retained as part of your records. • If you meet these requirements, simply exclude the amount of the overcollection from the amounts you report on Form 941. If the overcollection is not repaid and receipted, it must be reported and paid over to the IRS.

12. Amended Returns • Repayment of an overcollection may be shown on Form 941-X if Form 941 has already been filed • If the overwithheld amount is repaid to the employee, you must obtain a written receipt from the employee showing the date and amount of repayment. • Retain the receipt as part of your records. • You may then make an adjustment for the repaid tax by filing Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund. • Form 941-X is a standalone form, meaning taxpayers can file it when an error is discovered, rather than wait until the end of the quarter to file an adjusted Form 941.

13. Amended Returns • Overcollection or overpayment of income or FICA taxes • If you withhold and pay over too much income or FICA tax, you are not entitled to claim a refund of the excess. • Your remedy is to repay the amount to your employees and claim the amount of repayment, if any, as an adjustment on your quarterly tax return. • If you collect and pay over more than the correct amount of employee tax but do not reimburse the employee for the overwithholding, the employee may: • claim reimbursement through a credit or refund on his income tax return; • authorize you to file a claim and receive a refund or credit; or • file a claim for refund of the overpayment on Claim Form 843.

16. Amended Returns • Underwithholding does not excuse you from paying the employment tax due on Form 941 • You must pay over the correct amount of tax to the IRS even if you fail to withhold any tax, or if you withhold too little. If the employee thereafter pays the tax, you will not be liable for it. However, payment by the employee will not relieve you from liability for penalties or additions to the tax stemming from your failure to withhold. You may apply for relief from withholding on Form 4670, which must be accompanied by signed Forms 4669 on which the employees involved have asserted that the taxes due on wages reflected on the 4669s have been paid in full.

17. Amended Returns • Any underwithholding error must be reported in the same calendar year in which the wages were paid • The additional amount of tax due should be reported as an adjustment on Form 941, which must be accompanied by a statement explaining the adjustment. • If you discover that you have underwithheld the income tax due from an employee, you must deduct any amount undercollected from any remuneration (including non-wage remuneration) payable to the employee that comes under your control during the remainder of the calendar year in which the undercollection occurred.

18. Interest-Free Adjustments and Claims for Refund • Revenue Ruling 2009-39 illustrates the application of the interest-free adjustment and claim for refund processes under the final regulations promulgated by Treasury Decision 9405 (TD 9405).

19. Interest Free Adjustments Pursuant to § 31.6205-1(b), an employer that has underreported and underpaid FICA tax with respect to any payment of wages can correct the error as an interest-free adjustment if the error is ascertained after the return reporting such tax has been filed. An error is ascertained when the employer has sufficient knowledge of the error to be able to correct it. An interest-free underpayment adjustment is made by reporting the additional amount due on an adjusted return filed by the due date for filing the employment tax return for the return period in which the error was ascertained.

20. Interest Free Adjustments The due date for filing the adjusted return is determined by reference to the type of return (e.g., Form 941 or Form 944) being corrected, without regard to the employer’s current filing requirements. The amount of the underpayment must be paid to the IRS by the date the adjusted return is filed

21. Interest Free Adjustments • However, an interest-free adjustment of ITW may only be made if the error is ascertained within the same calendar year that the wages to the employee were paid, unless: • (1) the underpayment is attributable to an administrative error, • (2) section 3509 (a relief provision to reduce employment tax liability in certain worker misclassification situations) applies to determine the amount of the underpayment, or • (3) the adjustment is reported on a Form 2504, Form 2504-WC, “Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment in Worker Classification Cases 5 (Employment Tax)

22. Pop Quiz #2

23. Distribution of Employee Copies Answer:

24. Distribution of Employee Copies • Retention • Delivery Method • “Oops” Runs • 8-pager: Letter, W-2, W-2C, Instructions • Security • SSO • Two-Factor Authentication • Trusted Contacts

25. Distribution of Employee Copies

26. Distribution of Employee Copies

27. Distribution of Employee Copies

28. Distribution of Employee Copies Trusted Contacts Trusted Contacts are email addresses or phone numbers provided by the employee during the hiring process or through some other controlled and verified means. Clients may provide up to three contacts for a user in a Security File. This could include both the corporate and personal email addresses, and a personal phone number. After a new user has provided a valid pair of authentication values, the user will be presented with a masked list of contacts and asked to select one. The system will then send an email message or place a voice call with a verification code included to the selected contact. The user will not be allowed to continue with the account creation process until the correct verification code is provided. By demonstrating that the user has control over the private email account or the phone number, there is a higher level of confidence that the user is legitimate.

29. EFW2C Preparation & Transmission

30. Pop Quiz #3

31. Common W2C Answer:

32. Common W2C • Payments upon death • Wages and accrued vacation pay earned by an employee prior to his death but paid to his estate after death should be included with wages paid to the employee prior to his death on Form W-2 in Box 3, "Social security wages" and Box 5, "Medicare wages and tips." • Only the wages paid to the employee prior to his death, not the wages and accrued vacation pay paid to the employee's estate are to be reported in Box 1, "Wages, tips, and other compensation." • Payments made to the estate after the year of death are not reported on Form W-2 and no withholding is required. • Amounts paid to the employee's estate must be reported on Form 1099-MISC

33. Common W2C • Incorrect Name or SSN • If you do not use the correct name and social security number on an employee's Form W-2, you may owe a penalty. • You must record the name and number of each employee exactly as they are shown on the employee's social security card. • If an employee's name is not correct as shown on the card, including the occasion where an employee's name has changed due to marriage or divorce, the employee should request a new card from the SSA.

34. Common W2C • Repayment of Loan or Advance by an Employee • Federal employment tax treatment of repayment of excess advances by a terminated employee depend upon when the advanced amounts are repaid. • Repayment in same year • Joe quit work on December 31, 2016, after receiving commission advances totaling $10,000. • Joe's employer withheld the appropriate federal income tax and FICA amounts from the advance payments. • However, Joe earned only $8,500 in commission during 2016. • Joe repaid the $1,500 excess commission at the time of resignation.

35. Common W2C Since he repaid the excess commission in the same year it was received, Joe is entitled to exclude the excess commission paid from gross income during 2016. Joe should also be given a credit by the company reflecting the amount of federal income tax and FICA withheld from $1,500, the excess payment. Regulations require his employer to get a written receipt from Joe showing the date and amount of repayment. The employer should also adjust filed employment tax returns to claim credit for the withheld federal income and FICA taxes reported on prior returns. The company may also obtain a credit or refund of the employer FICA tax attributable to the excess commission paid to Joe

36. Common W2C • Repayment in different year • Millie quit work on February 1, 2016 after receiving advance commission payments of $10,000 in 2015 and $1,000 in 2016. • Millie's employer withheld appropriate federal income tax and FICA amounts from the advance payments. • However, Millie earned only $8,500 in commissions during 2015 and $800 in commissions during 2016. • She repaid a total of $1,700 for excess advances made at the time of termination ($1,500 for 2015 and $200 for 2016)

37. Common W2C When she repaid the excess commissions in February 2016, the employer had already released its 2015 Forms 941 and W-2. Since Millie did not repay the excess commissions received in 2015 until 2016, she is required to report the excess commissions as income in 2015, and is entitled to a deduction in 2016 for the repayment, but only if she itemizes deductions. The employer does not give Millie a credit for the amount of federal income tax withheld on the $1,500 in 2015 repaid advances, but she is entitled to a credit for the federal income tax withheld on the $200 in 2016 advance repayments. Millie is also entitled to a credit for the entire amount of FICA taxes withheld on excess commissions paid in 2015 and 2016. The employer would report the adjustment of excess commissions paid to Millie in 2015 on its Form 941 filed for the first quarter of 2016. The employer would also furnish her with a W-2 marked "Corrected by Employer" showing Millie's corrected FICA earnings and FICA employee tax

38. Common W2C • Substantial Presence for F1 Visa Holder • No longer FICA exempt • Company owes both employer and employee portions of tax

39. Common W2C • State Adjustments • Employee changes resident state • Employee changes work state • Trailing liabilities

40. Questions?

41. Becky Harshberger bharshberger@ep.com Mindy Mayo mindy.mayo@ryan.com Danny Tomasello dannyt@cicplus.com

42. Thank You!