Proposed Payroll Tax Reporting Deadline Change Puts Pressure on Employers

Included in President Obama’s proposed 2015 fiscal year budget, there is a provision to accelerate the deadline for employers to deliver end-of-year W-2 tax forms to the federal government. The deadline for delivery of forms to employees is currently January 31st and then reported to the Social Security Administration (SSA) the last of February (March 31st for electronic filing) each year. What does it mean for employers if that reporting date is moved up to January 31 every year?

Here are some of the hitches in that plan for entrepreneurs:

1. “Third-party sick pay and state disability pay information is not due to employers until January 15 for inclusion on an employee’s Form W-2.” (American Payroll Association) That means that employers will have only 16 CALENDAR days to get the information and process it into their system.
2. Employers will have only 31 CALENDAR days to gather and process payroll records after the year end. With information reported on the tax forms coming from a variety of sources, accelerating the reporting date increases the potential for errors.

Consider that year-end tax forms can include the following:

• Dependent care benefits
• Nonqualified deferred compensation distributions
• Elective deferrals to retirement plans, including designated Roth contributions
• Uncollected social security and Medicare taxes on tips or group term life insurance provided to former employees
• Taxable cost of group term life insurance provided to current employees
• Substantiated employee business expenses if the employee is reimbursed more than the IRS allowable per diem or mileage allowance
• Nontaxable moving expense reimbursements paid to employees
• Nontaxable combat pay paid by a military employer
• Contributions to medical savings accounts and health savings accounts
• Qualified adoption expense reimbursements
• Nonstatutory stock option income at exercise
• Deferrals (requirement temporarily suspended) and income under a §409A nonqualified deferred compensation plan
• Cost of employer sponsored health coverage

(American Payroll Association)

3. Bear in mind that the reconciliation and adjustment period would be shortened by a month. That in itself puts a heavier burden on small business owners and their accounting staff (or services).
4. The change would likely create a trade-off between timeliness and accuracy. Already 6% to 8% of employers adjust figures every year, that would more than likely increase with the deadline pushed forward. That would likely result in adjusted 1040s being filed by

All in all, this change, which may or may not be enacted, could affect the way employers keep records all year long. It’s not just payroll but also the benefits and health care reporting. Employers would be best served by engaging the services of a payroll provider like The Payroll Department. When changes in payroll tax laws are enacted, compliance is mandatory and sometimes that might be difficult if you aren’t an expert in that area. Don’t take chances. Bet on experience and expertise. Contact The Payroll Department now so you are ready for coming payroll tax law changes.

-Elaine of The Payroll Department Blog Team