It’s W-2/W-3 tax reporting time again. Here are some of the most significant tax highlights to consider and be aware of for this year.
- The Tax Relief Act has temporarily reduced the rate of social security tax withholding (for employees only) from 6.2 percent to 4.2 percent for wage payments made in 2011.
- The advance Earned Income Credit (EIC) has been eliminated for tax years beginning Dec. 31, 2010.
- Be sure not to overlook that Form W-3 has now been expanded to include a “Kind of Employer” field that you’ll need to complete.
- The penalties for failure to file correct information returns and failure to furnish payee statements have doubled, or even tripled.
The Obama administration’s new Affordable Care Act now requires you to report the cost of health insurance coverage that you provide employees on each employee's annual Form W-2. However, according to Notice 2010-69, the IRS is deferring the reporting requirement for 2011, making it optional until 2012. For certain employers (including those filing fewer than 250 W-2 reports for 2011), and with respect to certain types of coverage, Notice 2011-28 states reporting the value of coverage will remain voluntary for the 2012 W-2s (the forms required for the calendar year 2012 that employers would provide employees in January 2013). �Compliance will be voluntary for future calendar years until the IRS publishes guidance giving at least six months of advance notice of any change to the rule.
If you are required or choose to voluntarily report coverage on W-2s, in order to help you effectively bring your record keeping for the new mandates in line and avoid wasting your time on unnecessary data compiling, we’ve compiled a list of which coverage types are not required to be reported on Form W-2.
- Dental and/or vision plans offered under separate insurance contracts
- Dental and/or vision that employees must elect and pay for apart from medical coverage
- Long term care coverage
- Accident or disability income insurance
- Supplemental liability insurance
- Workers’ compensation insurance
- Automobile medical payment insurance
- Independent coverage for a specified disease or illness (e.g., cancer insurance)
- Multiemployer plan coverage
- Self-insured coverage that isn’t subject to federal continuation coverage requirements (such as COBRA, the Public Health Service Act or the Federal Employees Health Benefits Program)
In addition, employers should not include the following amounts in calculating an employee’s total cost of coverage.
- The amount contributed to any Archer MSA.
- The amount of salary reduction election to Flexible Spending Accounts (FSA).
- The amount contributed to any Health Savings Account.
Since the W-2 reporting is presumably just for the government to collect information on us for now, the amount reported doesn’t actually affect tax liability. As before, employer contributions to health coverage continues to be excludible from an employee's income and it is not taxable, so you aren’t required to include the reportable costs on the Form W-3.
In its endeavor to entice all employers to e-file their W-2/W-3 reports, the Business Services Online (BSO) Office of the Social Security Administration’s W-2 Online application added a new feature for its Tax Year 2011 release in December. In addition to filing your 2011 and 2010 tax year W-2 and W-3 reports, you can now file prior year W-2 and W-3 reports through W-2 Online as well. Also, W-2 Online has increased the number of W-2s you can file from 20 to 50. More information for filing with the Social Security Administration (SSA) can be found in Publication No. 42-007.
Looking for a simplified way to test your wage reports for accuracy and avoid headaches? The SSA provides AccuWage to employers, which is software to help you detect and fix any errors prior to submitting your report. If you do happen to find errors after filing, you can make corrections and submit W-2C or W-3C reports by downloading AccuW2C. To find the correct version of both of these free software downloads for your computer, visit the AccuWage Web page.
With so many deadlines, it can be hard to keep track. Here are a few important dates to remember.
- Jan. 1, 2012 - Update payroll system to reflect 2012 wage based rates
- Jan. 31, 2012 - Deadline for supplying Copy B, C & 2 of Form W-2s to employees
- Feb. 29, 2012 - Deadline for filing paper Copy A of Form W-2 with Form W-3 to the Social Security Administration, or to request an extension (Copy 1 is filed with the local tax authority by the employer in compliance with local or state tax laws.)
- April 2, 2012 - Deadline for filing electronic W-2s
