Advanced IRS Form Filing

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Advanced IRS Form Filing

• Clark Fletcher Timothy Beard
• Internal Revenue Service Social Security Admin.
• Bellevue Seattle
• Clark.M.Fletcher_at_irs.gov Tim.Beard_at_ssa.gov
• 425 489-4042 206 615-2125
• September 12, 2008

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Agenda

• W2/941 Reconciliation
• Error Avoidance
• Error Resolution
• 941
• W2
• Examples

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Why Does It Matter?

• Inaccurate Wage and Tax Reporting May Inflate Tax
  Liability
• Penalties and Interest
• Employees May Be Subject to Underreporting
  Enforcement
• Potentially Incorrect SS Benefits
• Negatively Impact Labor Relations
• Loss Of Public Confidence

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Prevention Is the Best Defense

• Reconcile, Reconcile, Reconcile!
• Each Payroll
• Monthly
• Quarterly
• Year End
• Dont Forget AP
• Taxable Fringe Benefits
• Non-Employees

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How Errors Are Discovered

• Internal Audit
• External Audit
• IRS/SSA Reconciliation
• Employees
• Social Security Statement
• IRS Notices

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IRS/SSA Reconciliation

• Compares Totals From W-2s With 941
• Income Tax Withheld
• Social Security Wages
• Social Security Taxes
• Social Security Tips
• Medicare Wages and Tips
• Medicare Taxes
• Advance EIC Payments

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Reconciliation Process

• W-2s Less Than 941 SSA Notice
• W-2s More Than 941 IRS Notice
• SSA Notices Mailed Nov-Feb For Prior TY
• Check Actual Data Sent To SSA IRS and Reconcile
  Discrepancies
• Reply To Avoid IRS Penalty
• See Employer Reconciliation Process
  Atwww.socialsecurity.gov/employer

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Corrective Steps

• 941
• 941C
• Amends 941s
• Filed With Next 941
• W2s
• Submit If Employee Omitted
• W2Cs
• Use If Prior W2 Incorrect
• All May Be Necessary

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Form 941 Corrections

• Form 941 Corrections Are Required When Wage
  Overpayments/Underpayments Are Detected
• Form 941 Corrections Are Required When Improper
  Amounts Are Reported on Forms W-2

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Form 941 Corrections

• Method of Correction Depends On When the Wage
  Error Was Detected
• During the Current Quarter,
• For a Past Quarter In the Current Tax Year, Or
• For a Past Year

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Form 941 Corrections

• METHOD OF CORRECTION
• Current Quarter
• Correct the Wages Prior to Performing the Next
  Payroll Run,
• Report the Amounts As Stated

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Form 941 Corrections

• METHOD OF CORRECTION
• Past Quarter In Same Tax Year
• 1. Prepare Amended Form 941
• 2. Transfer Amounts From Amended Form 941 And
  From Original Form 941 To 941-C Columns
• 3. Calculate Taxes

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METHOD OF CORRECTION Past Quarter In Same Tax
Year (Continued)

• 4. Adjust Next Federal Tax Deposit (FTD)
• 5. Attach Form 941-C To Next Quarters Form 941
• 6. Report Taxes On Line 7e, Form 941

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Form 941 Corrections

• METHOD OF CORRECTION
• Past Tax Year
• 1. Prepare Amended Form(s) 941
• 2. Transfer Amounts From Amended Form(s) 941 And
  From Original Form 941 to 941-C Columns

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Form 941 Corrections

• METHOD OF CORRECTION
• Past Tax Year (Continued)
• 3. Calculate Taxes
• 4. Attach Form 941-C To Next Quarters Form 941
• 5. Report Taxes On Line 7e, Form 941

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Form 941 Corrections

• METHOD OF CORRECTION
• Past Tax Year (Continued)
• 6. Prepare Forms W-2C and W-3C
• 7. Reconcile Amounts Reported On Form W-3 With
  The Amounts Reported On Form 941-C
• 8. Issue Forms W-2C, File Forms and Form W-3C
  with SSA

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Form 941 Corrections

• Federal Income Tax Limitations
• Federal Income Tax Withholding Can Not Be Changed
  For Any Prior Pay Period UNLESS The Employer
  Inadvertently Under/Over Withheld The Employees
  Income Taxes (Administrative Error)
• Amounts Are Credited In The Year Of Receipt

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Form 941 Corrections

• Federal Insurance Contributions Act
• (FICA) Wages and Taxes
• Amounts May Always Be Adjusted Within the Three
  Year Statute Of Limitations Period
• Amounts Are Credited In Year Earned

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Form 941 Corrections

• Forms W-2C
• Claiming the Employees Back Taxes Requires
  Written Consent From the Employee
• Employees Back Taxes Should Be Repaid With
  Issuance of Form W-2C

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Form 941 Corrections

• Repaid Wages
• Do Not Adjust the Current Payroll Records To
  Account For the Receipt Of Repaid Wages
• Each Tax Year, The Employer Is Required To Issue
  Form(s) W-2Cs To Reflect the Decreases In the
  Social Security Wages

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Form 941 Corrections

• Form 941-C
• Box B State Current Quarter Form 941
• Box C State Date Of Discovery (For FTD
  Purposes)
• Part II Applies To Current Tax Quarters Only

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Form 941 Corrections

• Form 941-C (Continued)
• Part III Social Security Adjustments
• Used For Past Quarters And Past Years
• Column A Same As Amended Form 941
• Column B Original Form 941 Amounts
• Column C Amended Form 941 Amounts
• Column F Net Tax Calculation

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Form 941 Corrections

• Form 941-C (Continued)
• Part IV Medicare Adjustments
• Used For Past Quarters And Past Years
• Column A Same As Amended Form 941
• Column B Original Form 941 Amounts
• Column C Amended Form 941 Amounts
• Column D Net Tax Calculation

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Form 941 Corrections

• Form 941-C (Continued)
• Part V Explain Nature Of Wage Adjustments
• Be Specific As Possible

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W2Cs

• Can Correct ID Data Or Money Amounts
• If Money Corrections, Show Original Amount and
  Correct Figure
• No Deadline
• Electronic Filing Options
• www.socialsecurity.gov/employer
• File Upload
• Fill-in The Form-W2C Online
• W3C Required If Use Paper Forms

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W2C
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Special Situations

• Repaid Wages
• Employee Repays In Later Year
• Adjust Social Security and Medicare Wages and
  Taxes For Prior Tax Year
• Report Adjustment Of Wages and Tax Amounts On
  Form 941-C
• Adjust Federal Tax Deposit Using Same Deposit
  Schedule

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Special Situations

• Repaid Wages (Continued)
• Report Adjusted Tax Amount On Line 7e, Form 941
• Issue and File Form W-2C/W-3C
• Employee Repays In Current Year
• Adjust Against Current Year Wages and Taxes

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Special Situations

• Back Pay Under Statute
• SSA Credits Contributions When Earned
• IRS Credits Income When Received

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Special Situations

• Back Pay Under Statute
• IRS
• Adjust Social Security Wages For Each Prior Tax
  Year
• Report Back pay As Wages In Current Tax Year
• 941/W2

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Special Situations

• Back Pay Under Statute
• SSA -
• Special Reporting Rules
• Detail of Payments Earned In A Prior Year
• In Addition To Current Year W2
• Individual Or Consolidated Report
• IRS Pub. 957

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Form 941 Corrections

• Example 1 (Wage Overpayments)
• On December 24th, A Wage Overpayment Error Is
  Discovered On the October 25th Payroll.
• Remedy?

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Form 941 Corrections

• Example 1.
• Remedy Upon Repayment Of Wages, Adjust Current
  Payroll Wages To Reflect the Correct Amounts
  (Same Tax Quarter Adjustment)

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Form 941 Corrections

• Example 2 (Wage Overpayments)
• On October 24th, A Wage Overpayment Error Is
  Discovered On the March 25th Pay Period.
• Remedy?

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Form 941 Corrections

• Example 2 (Wage Overpayments)
• Remedy Upon Repayment Of the Wages, Prepare Form
  941C To Reflect the Correct Wages For Each
  Quarter (Same Tax Year Adjustment).
• Use Amended And Original Forms 941

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Form 941 Corrections

• Example 3 (Wage Overpayments)
• On February 1st, A Wage Overpayment Was
  Discovered For the December 24th Pay Period
• Remedy?

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Form 941 Corrections

• Example 3 (Wage Overpayments)
• Remedy
• Step 1. Upon Repayment Of the Wages, Prepare Form
  941C To Reflect the Correct Wages For Each
  Quarter
• Use Amended And Original Forms 941

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Form 941 Corrections

• Example 3 (Wage Overpayments)
• Remedy (Continued)
• Step 2. Prepare Forms W-2C, Reconcile Amounts On
  Forms W-2C, W-3C, And 941-C (Prior Tax Year
  Adjustment)
• File Forms As Appropriate

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Form 941 Corrections

• Wage Overpayments Summary
• Corrections Completed And Reported In the Same
  Tax Quarter Or Same Tax Year Should Not Affect
  the Amounts Reported On Forms W-2
• Why? Prior To the Filing Date

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Form 941 Corrections

• Wage Overpayments Summary
• Current Tax Quarter
• Internal Adjustment
• Prior Tax Quarter
• Never Adjust FITW Wages Or FITW
• Always Adjust FICA Wages
• (Federal Income Tax Withholding)

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Form 941 Corrections

• Wage Overpayments Summary
• 3. Prior Tax Year
• Never Adjust FITW Wages Or FITW
• Always Adjust FICA Wages
• Always Issue And File Forms W-2C

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Form 941 Corrections

• Wage Underpayments
• For FITW Purposes Include In Current Payroll

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Form 941 Corrections

• Wage Underpayments
• For FICA Purposes Include In Current Payroll
  And Follow Special Reporting Rules If Backpay
  Under Statute Or Similar Agreement
• All Other Back Pay Is Reported In the Year Earned
  And Requires Amended Returns (Same Procedures)

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Form 941 Corrections

• SUMMARY
• Corrections Spanning One Tax Year Or More Will
  Always Require The Issuance Of Amended Forms W-2
  Because Of The Changes In The Employees Social
  Security Earnings

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Resources

• IRS
• Federal, State and Local Government
• www.irs.gov/govt/fslg
• Tax-Exempt/Government Entities Hotline
• 1-877-829-5500
• Martinsburg Computing Center
• www.mccirp_at_irs.gov
• 1-866-455-7438
• Publications and Forms
• www.irs.gov
• 1-800-829-3676

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Resources

• SSA
• State and Local Government Employers
• www.ssa.gov/slge
• www.socialsecurity.gov/employer
• Employer Reporting Service Center
• 800 772-6270