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IRS to Survey 10,000 Employers in September on Costs, Resources Used in Tax Compliance

Thursday, June 19, 2014

By Michael Trimarchi  

A survey to chart employer efforts in complying with tax regulations is to be sent to 10,000 employers in September, an Internal Revenue Service official said June 5 in a teleconference with payroll professionals.

The goal of the voluntary survey is to obtain information on time, money and other resources spent by employers when dealing with compliance requirements, such as income tax withholding, processing Forms W-2, Wage and Tax Statement, and filing taxes, said Anita Bartels, senior program analyst for employment tax policy with the IRS.

Employers also may report challenges faced in tax compliance, such as duplicate reporting, Bartels said.

The IRS plans to use the data to reduce employer compliance burdens, Bartels said.

Whether third parties, such as accountants and payroll service providers, are to participate is unclear, but Bartels said the IRS would consider their inclusion.

Employers who receive a survey in the mail but choose to not participate would not be penalized, Bartels said.

The upcoming survey follows another IRS data-gathering initiative on employment tax compliance, the National Research Program. The program, which involved auditing 6,000 employers over a three-year period, is expected to be finished in the summer of 2014, an IRS lawyer said last fall.

The agency is analyzing National Research Program data to determine compliance issues related to unreported tips, worker misclassification and other employment-tax concerns. The Treasury Inspector General for Tax Administration said in a July 2013 report that programs meant to combat worker misclassification had little ability to enforce compliance after employment status was determined.

Incorrect W-2s, Sick Pay, Third-Party Payroll Processors

Other topics discussed during the IRS payroll conference included:

• Entire 2014 W-2 reports sent by employers to the Social Security Administration are to be rejected for errors in reporting Medicare and Social Security wages and tips on just one W-2, said Tom Bricker, program analyst and project manager at the SSA.

The error conditions include: Medicare wages and tips less than the sum of Social Security wages and tips; the Social Security tax is greater than zero but the Social Security wages and tips are zero; and the Medicare tax is greater than zero, but Medicare wages and tips equal zero, Bricker said.

“In any of those situations, that W-2 is inherently wrong,” Bricker said. “If we have a W-2 in a wage report that shows those conditions, we are rejecting the report at the report level. Therefore, that whole report will need to be resubmitted.”

The SSA announced its tightened policy against errors in W-2 submissions in May at the American Payroll Association's 2014 Congress in Minneapolis. The agency no longer accepts as valid submissions those with inaccurate record identification codes, invalid sequences, invalid record lengths and other extraneous data.

In general, there is “zero tolerance” for formatting errors in electronic W-2 filings, Bricker said May 13.

The SSA received about 202 million electronic 2013 Forms W-2, Wage and Tax Statement, by early May and the agency is implementing changes to more efficiently receive and process the files, Bricker said. More than 1.2 million electronic W-2 files were processed through a system that was designed to handle 125,000 submissions, he said.

Also during the June 5 IRS call:

•  The IRS does not plan electronic processing of third-party sick-pay recap reports for Form 8922, Third-Party Sick Pay Recap, for the 2014 filing season, said Dan Lauer, acting chief for IRS employment tax operations. Filing is to be completed on paper forms, he said. Form 8922, which has not been released by the IRS, is to replace only the recap part of the third-party sick pay reporting process. Individual Forms W-2 reporting third-party sick pay still need to be filed with the SSA, Bricker said.

The reporting of third-party sick pay to the SSA ends after tax year 2014, which prompted the IRS to develop a recap statement. The IRS previously said among the considerations was using the Filing Information Returns Electronically (FIRE) system, a new schedule for Form 941, or a new stand-alone form.

• IRS examiners are to provide employers being audited with information on different types of third-party payers and how to check that deposits are made by using the Electronic Federal Tax Payment System, said Judy Davis, a project manager and senior program analyst at the IRS. The examiners received the guidelines in an interim guidance memorandum, “Procedures for Examinations Involving Third-Party Payers,” issued May 8. Examiners also are to provide employers with a 2013 fact sheet, “Tips for Employers Who Outsource Payroll Duties.”

The IRS said in May that about 500,000 employers were issued inquiry personal identification numbers as of April 16 that allow them to verify federal tax deposits made by batch-service providers. The agency-issued identification numbers allow employers to electronically monitor federal tax deposit accounts to confirm that deposits were made on their behalf by the third-party providers.

The program to issue the PINs to access the Electronic Federal Tax Payment System is part of a campaign announced in December 2013 to encourage clients of payroll service providers to be sure their federal employment taxes are being paid. The program started in January.

In 2015, the IRS plans to issue PINs to clients of bulk providers, which include payroll processors making more than 1,000 federal tax payments a day.

To contact the reporter on this story: Michael Trimarchi in Washington at mtrimarchi@bna.com.

To contact the editor on this story: Michael Baer at mbaer@bna.com.

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