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IRS Form Penalties: Small Mistakes, Large Fees

Jul 27, 2018 11:26:09 AM

August 2018 marks the start of the Social Security Administration (SSA) mailing “Educational Correspondence” to employers who have submitted Forms W-2 with information that does not match the SSA’s records. The first letter provides resources for employers in order to help them submit accurate information for their employee’s Forms W-2. It also warns that more letters will be sent, starting in 2019, if the employer continues to submit forms with errors. Some of the most common errors include incorrect name, and Social Security Numbers (SSNs) not matching what is on file. Something like an unreported marriage or divorce would result in an incorrect name on SSA records.

Forms W-2 are IRS tax forms, and because of this IRS information reporting penalties can apply to forms that fail to “file and furnish correct information Returns by the required due date.” These penalties can apply if an employer does any of the following:

  • Failing to file timely
  • Failing to include all information required on Form W-2
  • Includes incorrect information on Form W-2 (this could include employee name or SSN that does not match government records)
  • Filing on paper when required to file electronically

While the SSA is attempting to help employers who are submitting Forms W-2 with incorrect information, the IRS has stricter and often hefty fines for those who file incorrectly. IRC Section 6721 (failure to file correct Information Returns) shows a fine of up to $260 per Form W-2 in 2018, and $270 in 2019, up to an annual maximum of $3,282,500. A business with an annual gross receipts of less than $5 million is subject up to a maximum of $1,094,000; these amounts can change year-by-year.

There’s also a second penalty under IRC Section 6722 (failure to furnish correct Information Returns) with can be applied alongside IRC Section 6721, meaning that an employer could be subject to both fines. If an employer violates both Section penalties, they can be subject to a fine of up to $540 per Form W-2 up to more than $6.5 million annually.

As if the above information won’t worry employers enough, Forms 1095-C (under the Affordable Care Act) are also subject to fines and penalties under IRC Sections 6721 and 6722.

All of that being said, the IRS has rarely enacted these penalties in recent years for incorrect information on Forms W-2, and no accuracy penalties have yet to be processed regarding Forms 1095-C. The SSA looks to be trying to keep it that way by sending the above-mentioned letters to employers that have submitted at least one name or SSN error on 2017 Forms W-2. The letters include general information and ask employers to ensure the accuracy of the Forms before submitting. They also have information on services to help employers including: Social Security Number Verification Service, viewing W-2 submission processing status including any errors, and AccuWage Software that tests wage files for proper formatting.

Though the IRS has been lenient recently with regards to incorrect information, it’s easy to see that it’s better not to test the waters. Employers should do everything in their power to ensure the accuracy of the Forms W-2, and 1095-C before submitting them.

The SSA has published a page offering helpful information and step-by-step instructions for employers with questions or concerns about filing their Forms. You can check it out for yourself HERE.

 

 

 

 

Bibliography

ADP Research Institute . (2018, July). Social Security Administration to Notify Employers of Name/SSN Errors. Retrieved from ADP Legislative Updates: https://www.adp.com/tools-and-resources/adp-research-institute/insights/insight-item-detail.aspx?id=D4764AF2-0762-4C34-B420-599536A1BF76

 

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