Even though tax year 2016 did not see major legislative changes related to payroll processing, the significant effects of the Protecting Americans from Tax Hikes (PATH) Act of 2015 is undoubtedly on the minds of all payroll professionals.
The PATH Act accelerates the deadlines for filing Form W-2, Wage and Tax Statement, with the Social Security Administration (SSA) to:
- January 31 (from March 31) for electronically filed Forms W-2; and
- January 31 (from the last business day of February) for paper Forms W-2.
Many states have followed suit and have accelerated their deadlines for filing copies of Form W-2 and accompanying annual reconciliation returns to January 31, while also lowering the threshold number of employees that triggers the requirement to file these returns electronically.
Consequently, on top of the multiple other year-end tasks to be tackled, payroll professionals must start their withholding and tax payment reconciliations and Form W-2 data-checking processes much earlier this year to ensure the information entered on the forms is correct before distributing them to employees and filing them with the SSA.
This month-by-month guide will aid your organization by highlighting the key 2016 Form W-2 processing steps that will help payroll keep it all under control.
Right now, prepare to file Forms W-2 with the SSA by the earlier deadline and distribute copies of the forms to each employee by taking the following steps:
- Determine the number of Forms W-2 that will be filed with the SSA:
- If 250 forms or more, they must be filed electronically; or
- If fewer than 250, consider using SSA’s Business Services Online (BSO).
- If Forms W-2 must be filed electronically with any states, register to do so.
- Determine state electronic filing requirements and file formatting specifications.
- Obtain employees’ consents to deliver their Forms W-2 electronically.
Be proactive by resolving potential Form W-2 errors now, before completing the forms. The most egregious errors employers make include:
- Entering incorrect or misspelled names or nicknames;
- Using titles or academic degrees before or after names; and
- Entering names that have changed but that employees have not reported to the SSA.
To prevent these errors, ask employees to review their names, addresses and Social Security numbers (SSNs) on their pay stubs to verify that they are correct and to promptly notify the payroll department of any changes. If an employee’s name has changed, continue to use the old name and ask the employee to contact the SSA to obtain an updated Social Security card if he or she has not already done so. Do not change payroll records until after the employee obtains an updated Social Security card displaying the new name. Also, verify that employees’ names and SSNs match by using the SSA’s Social Security Number Verification Service (SSNVS), available via BSO.
By January, the task of actually completing the forms should be well underway.
If the employer offers pretax deductions, prepare and distribute a notice for employees explaining the calculation of the figures in Boxes 1, 3 and 5 on Forms W-2. In addition, review the forms for employees who have:
- Wages that exceed the Social Security wage base;
- Taxable fringe or other benefits that must be reported in Box 10 or Box 12; or
- A status that must be checked off in Box 13.
Then calculate the cost of employer-provided health coverage, if required, and verify that it will appear in Box 12 with Code DD.
Other steps to take before filing the forms include:
- Reconciling Form W-2 totals against the year’s final Form 941;
- Double checking that the W-2s reflect the correct federal and state Employer Identification Numbers;
- Entering employees’ names on the W-2s exactly as shown on their Social Security cards; and
- Backing up Form W-2 data (use SSA’s AccuWage application and software to verify the entries).
If applying for a hardship waiver from electronic filing, file Form 8809 with the IRS.
After filing and delivering the forms to all employees, process any employee requests for duplicates without charging any processing fees.
Once the W-2s are finally out the door, promptly make and file any needed corrections to ensure employees have the proper information for their personal income tax returns, which they must file with the IRS by the April 2017 deadline.
This is the time to prepare Form W-2c, Corrected Wage and Tax Statement, for employees whose Forms W-2 contained a withholding error of at least $25, and for those who ask for a corrected form regardless of the error, and attach a copy to Copy D of the employees’ W-2s. And finally, tell employees to attach their Form W-2 and Form W-2c, if any, to their Form 1040, Individual Income Tax Return.