Wait! Before you submit those W-2s, double check these two boxes
So by now you’ve gotten those W-2s into employees’ hands, but they likely haven’t been filed with the feds yet. And that’s a good thing.
Because it allows you and your finance staffers to give another once-over to two areas that have been causing particularly high error rates for your peers:
- Box 12, and
- Box 13.
In fact, retirement plan reporting has been so troubling that last fall IRS issued a heads-up for employers shining a spotlight on the errors it’s been seeing.
Translation: The Taxman won’t accept them if you make them this go-around.
Which makes now the perfect time to give one final scan to these two critical boxes to make sure your company is in compliance.
Mistakes made in Box 12
As IRS went through employers’ Forms 5500, it noticed the following four mistakes you don’t want to make at W-2 time:
- Code D for 401(k) elective deferrals incorrectly included 403(b), 457, or non-qualified amounts.
- Code E for 403(b) contributions but did not have a 403(b) plan.
- Code H to incorrectly report health benefits; code H is for elective deferrals to a 501(c)(18)(D) tax-exempt organization plan. (In fact, a recent Employee Plan Compliance Unit project found that only 6 % of employers who used this code actually contributed to a 501(c)(18) plan.)
- Code S for a SIMPLE 401(k); the correct code for a SIMPLE 401(k) is code D.
Make sure your staffers understand which codes are supposed to be used when. Here’s a little refresher:
- Code D – 401(k) contributions (Elective deferrals to a 401(k) cash or deferred arrangement, including SIMPLE 401(k)s)
- Code E – 403(b) contributions (Elective deferrals made under a 403(b) salary reduction agreement)
- Code F – 408(k)(6) contributions (Elective deferrals made under a Salary Reduction Simplified Employee Pension Plan)
- Code G – 457(b) contributions (Elective and nonelective deferrals made to a 457(b) deferred compensation plan)
- Code H – 501(c)(18)(D) contributions (Elective deferrals to a Section 501(c)(18)(D) tax-exempt organization plan. Included in the “Wages, Tips, Comp.” amount in Box 1)
- Code S – 408(p) SIMPLE contributions (Deferrals made under a SIMPLE IRA plan)
- Code AA – Roth contributions (Designated Roth contributions under a 401(k) plan)
- Code BB – Roth Contributions (Designated Roth contributions under a 403(b) plan)
- Code EE – Roth contributions (Designated Roth contributions under a governmental 457(b) plan (a tax-exempt organization’s 457(b) can’t have a designated Roth account)
Mistakes made in Box 13
No codes for this next box – it’s just a matter of checking or not checking it. But employers are still coming up short, says IRS, and checking when they shouldn’t, or vice versa.
Remind your Payroll staffers that your company should check the retirement plan box if an employee was an “active participant” for any part of the year in:
- a qualified pension, profit-sharing, or stock-bonus plan under Internal Revenue Code Section 401(a) (including a 401(k) plan).
- an annuity plan under IRC Section 403(a).
- an annuity contract or custodial account under IRC Section 403(b).
- a simplified employee pension (SEP) under IRC Section 408(k).
- a SIMPLE retirement account under IRC Section 408(p).
- a trust described in IRC Section 501(c)(18).
- a plan for federal, state, or local government employees or by an agency or instrumentality thereof (other than a 457(b) plan).
The general rule is, an employee is an active participant if covered by a defined contribution plan (for example, a 401(k) plan) for any tax year, and is credited with any contributions or forfeitures or a defined benefit plan, for any tax year that the employee is eligible to participate.
Note: Don’t check the retirement plan box if your company only has non-qualified or 457(b) plans.
Happy filing!
Info: “Common Errors on Worm W-2 Codes for Retirement Plans,” at www.irs.gov/Retirement-Plans/Common-Errors-on-Form-Ws-Codes-for-Retirement-Plans
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