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Employers file wage and employment tax withholding information with IRS
on Form 941 (Employer's Quarterly Federal Tax Return), Form 942
(Employer's Quarterly Tax Return for Household Employees), and Form 943
(Employer's Annual Tax Return for Agricultural Employees). These forms
show gross wages and taxes for the employer's payroll for the quarter.
After the calendar year ends, employers prepare individual employee
reports on Forms W-2 showing the wages paid and taxes withheld for each
employee during the year. The same information is provided to SSA for
crediting to the employees' earnings records--either by sending SSA the
original copies (copy A) of the paper Form W-2s or by sending the Form
W-2 information in the form of magnetic media reports. The information
submitted to IRS on Form 941 is compared to the Form W-2 information
sent to SSA and any discrepancies must be resolved by the employer.
Beginning January 1, 1994 income tax withholding from non-wage payments
is no longer reported on Form 941. These non-wage items must be
reported on Form 945 "Annual Return of Withheld Federal Income Tax".
HOW SSA PROCESSES WAGE REPORTS
Paper W-2 and W-3 wage reports are sent by employers to the SSA data
operations center in Wilkes-Barre, Pennsylvania. See Form W-3
instructions for the address. This center screens the wage reports for
legibility and timeliness. Illegible reports are rejected and the
employer is asked to provide legible copies. Reports that are received
late--beyond the filing date--are identified to IRS for possible late
filing penalty assessments.
Paper wage reports are imaged and optically scanned by machine. Those
reports that cannot be completely "read" by the imaging and scanning
equipment are set aside for operator keying. This delays processing and
is more costly and more subject to error. After machine imaging and
scanning or operator keying, the wage data are converted to magnetic
media for employee name and Social Security number (SSN) verification
and updating to IRS and SSA records.
Magnetic media wage reports (tape, diskette, or cartridge) are sent to
SSA in Baltimore, Maryland for processing. There the wage reports are
processed through balancing and validation programs to determine if the
reports can be "read" by SSA systems and whether the report data is
accurate. Reports that fail these program tests are returned to the
employer (or transmitter) for correction and resubmission. Failure to
correct the errors and resubmit a corrected report within 45 days may
result in IRS assessment of penalties. The rest of the reports are
processed for employee name/SSN verification and then updated to IRS and
SSA records. Reports received late are identified for possible late
filing penalty assessments by IRS.
VERIFYING EMPLOYEE NAMES AND NUMBERS
After wage reports have been entered into SSA systems, each employee
name and SSN is matched to SSA's files to verify that it is correct.
Matched wage reports are updated to the individual employee's record.
Reports that do not match are identified and the employee is asked to
provide corrected name and number information so SSA can post the
reported earnings to the correct record. If the wage report does not
show a usable address for the employee, the employer is contacted and
asked for the correct information.
SSA POSTING OF REPORTED WAGES
Once the employee's name and number on wage reports has been verified,
SSA posts the reported wages to the employee's earnings record. These
wage amounts will then be used in the future when calculating the
employee's retirement or disability benefits, and survivor benefits for
the employee's family--and in determining eligibility for Medicare
When errors in the wage amounts posted by SSA to an employee's record
are detected, SSA contacts employers for evidence from their files of
the correct earnings amounts. SSA investigations lead to over 200,000
corrections to employer wage reports each year.
SSA AND IRS RECONCILIATION PROCESSES
As SSA processes employer wage reports, it maintains a record of total
wages and tips processed for each employer. These totals are then
compared with the totals from IRS employment tax records filed by the
employer with IRS on Forms 941, 942, or 943. Employers whose reports to
IRS and to SSA do not balance are contacted for an explanation--IRS
contacts employers who reported more wages to SSA than to IRS and SSA
contacts employers who reported more wages to IRS than to SSA.
Failure to resolve these discrepancies may result in IRS assessing
penalties for filing incorrect reports.
excerpted from 1995 Social Security Admin. material
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