Payroll in Practice 2.7.2022

Question: An employee’s Form W-2, Wage and Tax Statement, was incorrectly issued with a foreign address. The employee has requested a Form W-2c, Corrected Wage and Tax Statement, to correct the address. The W-2 does not contain any other errors. The Internal Revenue Service says to issue a Form W-2c to the employee that shows the correct address in Box i and all other correct information. It also says that a W-2c prepared simply to correct an employee address should not be filed with the Social Security Administration. Does this mean to show all the information, such as wages and taxes, in the “Correct Information” column?

Answer: While the Form W-2c instructions do say to include all other correct information, they also direct employers to limit the entries to the information that is being corrected. Since this form will not be sent to the Social Security Administration, the purpose of issuing the W-2c is to provide the employee with corrected information in an unambiguous format rather than making a change to the original W-2.

An incorrect employee address on the W-2 is an insignificant issue for the SSA and the IRS. The SSA will not initiate a change of address based on the W-2, and the IRS has enough information to match the employee to the tax return. In fact, the employee could use the original form for tax filing.

Still, it is best to provide the employee with a clean copy of the Form W-2 rather than issuing a W-2c. Reissuing the W-2 with the correct address has the least potential for confusion or further error.

An erroneous address it is not an “inconsequential error or omission” for purposes of failing to timely furnish a correct payee statement. This type of error could delay the receipt of the information return and hinder the employee from filing a correct tax return.

The IRS provides several methods for dealing with an incorrect address. It is clear from the instructions that these methods are for dealing with a W-2 that was undeliverable to the employee because the address was incorrect. Because the Jan. 31 filing deadline has passed, the W-2 has likely already been filed with the SSA, so the “corrected” form method described below would not apply.

Use the corrected method if the original W-2 has not been filed with the SSA. If filing on paper, simply void the original Copy A that would be sent to the SSA and prepare a new W-2 that has the correct address. The voided copy will not be read by the SSA system. If filing electronically, simply correct the employee record in the electronic file. The employee copies of the correct W-2 should have “CORRECTED” written across the top so that it is clear which W-2 the employee should use for the employee’s tax return.

When Forms W-2 have already been filed with the SSA, correcting an employee address has more to do with delivering the W-2 to the employee than with correcting the address.

This is evident because, as an alternative to making the correction on a W-2c, the employer could reissue the W-2 without correcting the address and simply mail it to the employee in an envelope that shows the correct address. The employee copies could also be delivered to the employee by some other means, such as electronic delivery or physically handing the copies to the employee.

The word “reissue” suggests that the employee did not receive the original due to the incorrect address. Any reissued Form W-2 should have “REISSUED STATEMENT” written across the top of the employee copies to avoid confusion in case the original copies turn up later.

A third method involves reissuing the statement. Under this method, a new, corrected Form W-2 that shows the correct address is issued to the employee with the correct address. The employer writes “REISSUED STATEMENT” on the employee copies. Copy A of the reissued Form W-2 should not be sent to the SSA.

Question: A client would like to set up a retirement plan for their small business. Is it too late to start one for 2021?

Answer: For most types of plans it is too late. However, Simplified Employee Pension plans may still be established up to the due date of the employer’s tax return, including extensions. The due dates for 2022 are March 15 for partnerships and S-corporations and, because of a holiday in Washington D.C., April 18 (April 19 for residents of Maine and Massachusetts because of state holidays in those states) for sole proprietors and C-corporations. If an extension was filed, the due dates are Sept. 15 for partnerships and S-corporations and Oct. 17 for sole proprietors and C-corporations.

Other types of plans must be set up during the year the plan is to take effect.

The setup of an employer’s initial SIMPLE IRA or SIMPLE 401(k) plan may take place anytime between Jan. 1 and Oct. 1 of the calendar year the plan is to take effect. There is an exception for a business coming into existence after Oct. 1 allowing for the plan to be established “as soon as administratively possible” after the business is created.

Qualified plans, whether defined benefit plans or defined contribution plans, such as profit sharing or money purchase plans, must be set up prior to the last day of the employer’s fiscal year. For calendar year employers the last day to set up a plan is Dec. 31 of the year the plan is to take effect.

However, a SEP plan may be set up any time before the due date of the employer’s tax return, including extensions.

To set up a SEP plan, an employer must:

• execute a formal written agreement to provide benefits to all eligible employees;
• give each eligible employee certain information about the SEP; and
• have a SEP-IRA set up for each eligible employee.

A SEP-IRA account must be set up by or for each eligible employee. SEP-IRAs may be set up at banks, insurance companies, and other qualified financial institutions. The employer sends the SEP contributions to the financial institution where the SEP-IRA is maintained.

An eligible employer may qualify for a tax credit for part of the ordinary and necessary costs of starting up a SEP that first became effective for 2021. The credit equals 50% of the cost to set up and administer the plan and educate employees about the plan. The credit is limited to either the greater of (a) $500 or (b) the lesser of $250 multiplied by the number of nonhighly compensated employees who are eligible to participate in the plan, or $5,000. An eligible employer can claim the credit for each of the first three years of the plan and may choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective.

There is also an autoenrollment tax credit that may be claimed by an eligible employer that adds an autoenrollment feature to their plan. The employer can claim a tax credit of $500 per year for a three-year taxable period beginning with the first taxable year the employer includes the autoenrollment feature.

For more information, see the IRS webpage Retirement Plans Startup Costs Tax Credit or IRS Publication 560, Retirement Plans for Small Business