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Description of the Annual Wage Reporting (AWR) Process

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OVERVIEW

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 coverage.

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.
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excerpted from 1995 Social Security Admin. material

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