Box 10 of Form W-2: Late-in-the-game IRS updates

With the deadline approaching for filing TY 2021 Forms W-2, IRS released revisions to the form and its instructions. That happened on Nov. 23, 2021.

Shortly thereafter, during its December Payroll Industry Call, IRS shed more light on the changes. They pertain to box 10 of Form W-2.

And don’t forget! IRS has already provided details you’ll need to complete box 14 of Form W-2 for TY 2021.

Here’s what you need to know as you head into year-end:

Changes to dependent care benefits

A law enacted during 2021 prompted the year-end revisions to Form W-2 and its instructions, IRS explained.

That law, the American Rescue Plan Act (ARPA), increased the exclusion for employer-provided dependent care benefits. Specifically, the ARPA bumped the limit from $5,000 to $10,500 (or from $2,500 to $5,250 if married filing separately) for 2021. Of course, employers need those numbers for box 10 of Form W-2.

Problem was, the TY 2021 form and instructions – released prior to ARPA – referred to a limit of $5,000 for dependent care benefits.

Even the stack of Forms W-2 IRS had already printed for TY 2021 contained the lower dollar amount.

IRS has no plans for reprinting until the current supply of forms runs out. Instead, it’ll provide additional info. When the IRS fulfills orders for the form, it’ll also send out Notice 1454, Errata Sheet for the Form W-2 and the General Instructions for Forms W-2 and W-3 (Rev. November 2021).

IRS fielded questions during its December Payroll Industry Call about allowable formats for the errata sheet. Employers sharing Notice 1454 with employees can do so in print or electronically.

Key points in Notice 1454

Check out these excerpts from the errata sheet:

• Regarding the section of Form W-2 called “Instructions for Employee,” Notice 1454 says: This section has been updated to remove the $5,000 limit. It’s been revised to state that any amount above your employer’s plan limit is also included in box 1.
• As for the form’s instructions in the section that provides specific info about box 10, Notice 1454 contains similar language: This section has been updated to remove the $5,000 limit. It’s been revised to advise of the increase to $10,500 or $5,250 for married filing separately if the employer timely amends the plan.

Note: Under ARPA, employers can amend their plans retroactively. If you want to do that, make sure you get the changes in place before the end of the plan year.