Why Obama wants more wage reporting
June 17, 2009 by Kerry IsbergPosted in: In this week's e-newsletter, Pay and benefits, Records documentation
A new Obama Administration proposal requires employers to report wage data to the Social Security Administration more frequently – maybe even quarterly – although workers would continue to receive annual W-2s.
The reason: Fraudulent income tax returns and and annual wage reports are costing the federal and state treasuries millions annually.
In theory, more frequent reporting would allow the IRS and states to match wage and withholding data to workers’ tax returns – a difficult, if not impossible, task right now.
Think about it: Companies submit W-2s to SSA and the states mid-tax season. So, by the time their file arrives at the agency, identity thieves have had weeks to create false W-2s and tax refund requests – plenty of time to file, collect and spend a fraudulent tax refund.
Two problems with the current structure:
- Even states with updated processing technology don’t have time to cross-check the data before the tax season begins, and
- Many states require electronic filing, but not all do. Specifically, about 63% of states with income taxes require electronic W-2 filing.
States have been including ever-smaller employers under such mandates, but these numbers still leave a lot of room for paper filing.
For this proposal to work, far more employers would have to e-file their data, or the SSA would need to share electronic W-2 data sooner.
Should the idea move forward, “The Administration will work with the states so that the overall reporting burden … is not increased,” the Administration’s May 2009 Budget Overview suggests.
Tags: IRS, obama, social security, ssa, W-2
June 22nd, 2009 at 8:44 am
Would it be too much like right to expect them to use the wage data that we already report to each state on a quarterly basis?
June 22nd, 2009 at 11:12 am
We report quarterly to both State and Federal government, including payment of UI taxes. Why are they not looking at it until year-end?
June 22nd, 2009 at 1:06 pm
Terry & Jeanette:
Employers report wages paid to each worker on a quarterly basis to the state UI agencies (but not to the federal government). This is indeed one source of information that could be helpful and it has been suggested as an alternative.
The drawbacks include:
* Definitional differences – Employers report quarterly wages subject to state UI coverage. The IRS needs to know wages subject to Federal Income tax. There are significant differences.
* Timing – The states do forward the quarterly reports of wages paid to the federal government, but with a substantial delay, so again, the IRS would not have access to more than the first two or three quarters of wage data until after income tax season, when they need it most.
* No Withholding data – The IRS needs to know the Federal Income tax amount withheld from each worker, which is not reported today other than through the annual W-2s. People overstating the amount withheld is a greater risk than people making false claims as to their wage amounts.
Hope this helps.
Kerry