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.