For 2014, a few important Form W-2 reporting changes may require some advance preparation to implement, including revised “Third-Party Sick Pay Recap” reporting procedures, automatic rejection of certain incorrect forms and revisions in providing contact information on Form W-3.
“Third-Party Sick Pay Recap” now filed with IRS on Form 8922
Effective January 2015, the Social Security Administration (SSA) will no longer process the “Third-Party Sick Pay Recap,” which is required in order to reconcile Forms W-2 to Form 941 when insurance companies and plan administrators share employment tax responsibilities with their client employers for disability payments.
Under the new procedures, applicable insurance companies, administrators and employers will be required to file Form 8922, Third-Party Sick Pay Recap, with the IRS by 28 February (or 31 March if filed electronically).
The IRS expects to release the final Form 8922 by December 2014. The draft form is available here.
SSA will now return certain invalid Forms W-2
The SSA announced that beginning with tax year 2014, it will reject for correction Forms W-2 that are filed with the following errors:
- Medicare wages and tips are less than the sum of Social Security wages and Social Security tips.
- Social Security tax is greater than zero, but Social Security wages and Social Security tips are equal to zero.
- Medicare tax is greater than zero, but Medicare wages and tips are equal to zero.
- Sum of Social Security wages and Social Security tips is less than the minimum yearly earnings subject to Social Security and Medicare tax withholding for a household employee.
- Medicare wages and tips are less than the minimum yearly earnings subject to Social Security and Medicare tax withholding for a household employee.
To avoid having their Form W-2 files returned, household employers should keep in mind that Social Security/Medicare tax does not apply to household employees if:
- An employee’s wages are $1,900 or less in 2014.
- Wages are paid to an individual who is under 18 at any time during the year and household work is not his/her principal occupation.
- Wares are paid to a regular student.
- An employee was paid less than $100 in the year by an exempt organization.
The Form W-3 (and W-3c, W-3SS) now specify that the employer’s contact information is requested and not simply the contact name, telephone number, fax number and email address.
Additionally, the placement of the boxes for fax number and email address is reversed in order to make additional space for a longer email address.
Ernst & Young LLP insights
Employers should keep in mind that having the SSA reject Forms W-2 puts them at risk of incurring penalties of up to $100 per form (with an annual maximum penalty of $1.5 million). The same penalties also apply to the employee statements.
Employers can prevent these kinds of Form W-2 filing errors by making sure that they or their vendors test Form W-2 files using SSA’s AccuWage software.