Question: The visa status of an employee of an agricultural employer changed during 2022 such that the employee was no longer exempt from Social Security and Medicare taxes. The employer was not aware of the change until after the 2022 Form 943 was filed in 2023. How should this be corrected?
Answer: Form 943-X, Adjusted Employer’s Annual Federal Tax Return for Agricultural Employees or Claim for Refund, is used to make corrections to a previously filed Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees.
IRS rules allow for the interest-free correction of payroll tax errors if the correction is made timely. A correction is timely if is made within the return period that the error was discovered. For this purpose, an error is not considered discovered until the employer has all the information necessary to make the correction.
The return period for Form 943 is the calendar year. Since the 2022 error was discovered during 2023, the due date for correcting the underpayment is Jan. 31, 2024, or the due date for the 2023 Form 943. The correction is made timely if made before Jan. 31, 2024. In contrast, the return period for Form 941, Employer’s Quarterly Federal Tax Return, is a three-month quarter.
To make the correction, Form 943-X will report, for all employees, corrected Social Security and Medicare wages and taxes (including the additional amount), the amount originally reported, and the additional tax liability. The tax deposit is timely if the additional amount of tax due is deposited by the time Form 943 is filed. Under the interest-free adjustment rules there will not be any interest charged on the underpayment provided the 943-X is filed and the taxes are paid timely.
An amended Form 943-A, Agricultural Employer’s Record of Federal Tax Liability, should not be prepared for this correction. The liability date for the additional tax is the date the error is discovered instead of the date the tax should have been withheld.
The 2022 Form W-2, Wage and Tax Statement, for this employee should be corrected. If the error is corrected before the W-2 is filed with the Social Security Administration, the correction is made by voiding the original paper Copy A and preparing a new Copy A or making the correction in the electronic file before filing with the SSA. Do not mark Copy A as “Corrected.” However, if employee copies were previously furnished to the employee, mark the employee copies of the new W-2 as “Corrected” and issue them to the employee.
If the Form W-2 has been filed with the SSA, a Form W-2c, Corrected Wage and Tax Statement, must be filed on paper or electronically. The employee copies must be furnished to the employee. While this change should not affect any state information, state rules regarding W-2 corrections should be checked to see if a copy should be sent to the state.
The unwithheld Social Security and Medicare taxes from the employee creates a wage overpayment and a potential overpayment recovery. Everything related to the error is to be reported on the 2022 Form 943 and Form 943-X. The error and recovery do not have any effect on 2023 payroll or the 2023 Form 943.
Any taxes paid by the employer that are not recovered from the employee constitute compensation for the employee in the year the taxes are paid. For example, if the additional tax is paid in 2023 and is not recovered from the employee, the amount paid should be included in 2023 wages. The employer should either withhold the related tax from other wages or gross up the taxes on the amount paid for the employee.
The correction should be made as soon as possible. An employer may file additional Forms 943-X if more errors for 2022 are discovered later.
This column does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Patrick Haggerty is the owner of a tax practice in Chapel Hill, North Carolina, and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at firstname.lastname@example.org.
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