The Treasury Department has made several proposals that may affect how and when businesses issue W-2s to government agencies, specifically the IRS. This effort is to attempt to curb the increasing threat of identity theft associated with tax refund fraud. They have proposed that the 1) deadline for wages to the IRS be moved to the end of January, and 2) the threshold requirement for e-filing this information be lowered.
- Currently W-2s are due to employees by the end of January. Employers are not required to report the same information to the IRS and Social Security Administration until the end of February. The IRS estimates it paid $5.2 billion in fraudulent refunds in the 2013 filing season, while preventing $24.2 billion based on what they could detect by matching employer-reported wages to individual tax returns). Under the current scenario, there is a gap that prevents the IRS from performing this match until July. The Treasury Department feels that if the IRS had access to this data earlier, it could conduct pre-refund matching and identify discrepancies earlier and prevent issuance of billions of dollars in fraudulent returns.
- The current threshold for e-file requirement is 250 information returns. This number eliminates most small businesses from the need of reporting wages and other payroll information electronically. According to the last census data, small businesses with less than 20 employees accounted for almost 90% of total workforce. The Social Security Administration estimated that the threshold requirement would need to be lowered to 5 or 10 to really impact a significant change.
What does this mean for you as a business owner? It is imperative to maintain accurate payroll information throughout the year. This makes the process of year-end information reporting like W-2s and 1099s easier. Small businesses have several options to accomplish this throughout the year. Utilizing an accounting software program like QuickBooks, using a payroll company to handle your payroll and payroll reporting, and engaging a CPA firm like Loggins Kern & McCombs are a few of the ways to make the process easier.
While no final decision had been made, the IRS concedes that the proposed changes could yield significant benefits to the government as well as taxpayers while placing the burden on businesses. They want to make sure that Congress has a good understanding of costs and benefits before making a final decision.
