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Employers are to file Forms W-2 and W-3 at least a month earlier in 2017 under a new law that deals with several payroll-related provisions, including a retroactive increase in tax-free transit and van-pool benefit amounts.
The spending bill (H.R. 2029), signed Dec. 18 by President Barack Obama, includes a new safe harbor for de minimis errors on information returns and payee statements, an extension of the work opportunity tax credit through 2019, a delay in the implementation date of the “Cadillac tax” on high-cost health plans, the reinstatement of the research tax credit and a permanent extension of the employer wage credit for employees called into active duty.
Under the legislation, Forms W-2, Wage and Tax Statement, and W-3, Transmittal of Wage and Tax Statements, are to be filed with the Social Security Administration by Jan. 31 for returns related to the previous year.
A year's Forms W-2 and W-3 now generally are due to the SSA in the next year by the last day of February, although electronic Forms W-2 are due March 31. The due dates for other information returns, such as the Form 1099, Miscellaneous Income, similarly were changed by the legislation.
The provision is to be in effect starting with returns and statements pertaining to the first year after the date of enactment. Because the law was enacted in 2015, the due dates for information returns change for the 2016 forms due in early 2017.
With accelerated filing, the IRS is targeting tax fraud and identity theft. The agency introduced an anti-fraud program in October that adds a verification code to employee copies of Forms W-2 for tax year 2015. A limited number of payroll service providers are to participate in the program to test the capability of verifying W-2 data. The service providers would select employer clients to join the project.
The IRS is to provide payroll processors with an algorithm to generate a unique code of 16 alphanumeric characters, separated into groups of four that would be set off by hyphens. Data from the W-2 are to be included in the code. The code is to appear on Copy B of Form W-2 that is filed with an employee's federal tax return and Copy C, which is for the employee's records. The W-2 would not include a new box during the pilot.
The information would be added by the service provider on the substitute forms that are distributed to the employer and employees. Service providers were encouraged to include information about the code in instructions to employees on the reverse side of the W-2.
An omitted verification code or an incorrect verification code would not delay acceptance or the processing of a return or the issuing of a refund during the pilot. Codes would not appear on W-2s that are sent to the Social Security Administration or to any state or local revenue departments.
If the program is successful, W-2s may change to include a verification code field no earlier than for tax year 2017, the IRS said.
Here are highlights of other provisions in the law:
•Transit benefits. The legislation establishes equal tax-free limits for transit passes, van-pool benefits and parking benefits, retroactive to Jan. 1, 2015, with parity permanently established. The transit and van-pool benefit had been $130 a month, but the new law allows the benefit to be $250 a month in 2015 and $255 a month in 2016, equal to the maximum tax-free amount allowable for employer-provided parking. Retroactive parity was restored for tax year 2014 but its was not renewed and expired at the end of that year.
•Work opportunity tax credit. The legislation extends the credit through 2019. The credit was modified for 2016 to apply to employers who hire qualified long-term unemployed individuals who have been jobless for at least 27 weeks and the applicable credit with respect to such individuals is 40 percent of the first $6,000 of wages.
•Truncated Social Security numbers on Forms W-2. The provision gives the Treasury Department the authority to require employers to include an identifying number for each employee, instead of an employee's Social Security number, on Form W-2. The change allows the department to develop regulations requiring or authorizing truncated Social Security numbers on W-2s.
•De minimis error safe harbor. A safe harbor from penalties was established for employers that fail to file correct information returns and that fail to furnish correct payee statements. The safe harbor could be used for an error of up to $25 if it involved tax withholding, or otherwise up to $100. The issuer of the information return would not be required to file a corrected return and no penalty would be imposed. The provision is to take effect for returns and statements filed after the 2016 tax year.
•Employer wage credit. The provision permanently extends the employer wage credit of 20 percent for employees called to active military duty. Starting in 2016, the credit is to be modified to apply to all employers, rather than those with up to 50 employees under current law.
•Excise tax on high-valued health plans. The implementation of the excise tax on high-valued health plans was delayed two years under the new law, to Jan. 1, 2020, from the earlier date of Jan. 1, 2018.
•Motion picture industry employment taxes. The new law allows payroll service providers to be treated as employers of film and TV production workers under federal tax rules. The provision, effective for wages paid Jan. 1, 2016 or later, comes a year after a third-party payroll provider for movie and TV production firms lost its bid for a Supreme Court review of a decision that prevented it from claiming that it overpaid taxes under the Federal Insurance Contributions Act and the Federal Unemployment Tax Act under the theory that some workers classified as employees were independent contractors (Cencast Servs. v. United States, U.S., 13-1098, cert. denied).
•Research credit. The research tax credit, which was detailed in Section 41 of the Internal Revenue Code but expired for general expenses incurred after Dec. 31, 2014, was reinstated. Employers may claim a research credit equal to 20 percent of the amount that the qualified expenses for a tax year exceed its base amount for that year. Qualified small-business employers may apply the research credit against the employer portion of Social Security tax instead of income tax liability.
A qualified small business would be a company, partnership or individual with gross receipts of less than $5 million for a tax year and that did not have gross receipts for any tax year before the period of five tax years ending with the tax year for which the credit would apply. An alternative simplified credit of 14 percent may be claimed in lieu of this credit.
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