W-2 and 1099 Information Return Corrections

Now that the IRS requires all W-2 and 1099-MISC forms to be filed by January 31^st, the IRS has recognized there may now be an increase in errors on these forms. In prior years, the IRS gave employers until the end of February to file those forms. If an employer needed to make a correction, that additional filing time gave employers the time to make corrections to the forms without having to file corrected W-2 or 1099-MISC. Now that time is gone.

In January, the IRS released a tax notice stating that if an information return (W-2, 1099-MISC, 1099-DIV, etc.) is in error by $100 or less, the employer/payor is not required to issue a corrected statement. For withholding, if the amount is $25 or less, a corrected statement is not required. This notice is referred to as the de minimis error safe harbor notice. However, there is an advisement and an exception.

For W-2 corrections, the IRS advises that employers may want to make those corrections anyway. The Social Security Office and IRS share W-2 information to ensure the employee’s social security wages and taxes are reported correctly for social security purposes. By providing corrected W-2s, the employees will receive proper credit for wages reported that year. Also, when the IRS reconciles the Form 941s filed each quarter to the year-end W-3/W-2s, the IRS will have the corrected W-2s and any reporting discrepancies will be eliminated.

For the exception, the person receiving the incorrect W-2 or 1099 form (the payee) may submit a valid election statement, which requires the employer/payor to issue a corrected statement or be subject to the incorrect information filing penalty.

Per the notice, the election statement can be filed via written, telephone, or electronic format. The electronic format cannot be the only format allowed. The employer/payor will need to create a policy that states the format of the election it will accept from the payee. We would advise that any elections be in writing as there is no record/documentation for a telephone call.

The election must include the following:

• Must clearly state that the payee is making an election for a corrected information return, and
• Must include the payee’s name, address, SSN/TIN.

The election can also include the following options:

• Identification of the types of W-2 or 1099 statements, and account numbers, if applicable, and
• Identification of the years the election should apply.

If the election does not include these options, the election will apply to all statements furnished to the payee and for all years the payee receives a statement.

As part of the employer/payor’s policy, we recommend that the election statements be kept on file for future reference. There should also be a tracking policy in place to ensure that the years the payee identifies that he/she is including in the election are followed. The policy cannot put a time limit on the payee to file the election statement. The payee can file the election statement at any time during the year.

After the election is filed with the employer/payor, the payee is allowed to revoke the election. The revocation must be in writing and applies to any future W-2 and 1099s forms.

Finally, the notice does state the IRS intends to issue future regulations on how to further implement these new changes. The regulations are expected to include how employers/payors will have communicate the de minimis rule for correcting information returns and information on the election employee/payees can file to received corrected statements.

In the meantime, if you are contacted by an employee/payee regarding a correction needed to a 2016 information return, and the error amount is less than $100 for income and/or less than $25 for withholding, you are no longer required to correct the information return. The employer/payor does still have the option to file corrected statements as you may decide implementing the de minims error safe harbor is not beneficial. Should you implement the de minimis safe harbor, when contacted by the employee/payee about a correction, you will need to inform the employee/payee of their option to file an election statement to get a corrected statement.

We will continue to follow these changes and notify you of the future regulations. If you have any questions on the de minimis error safe harbor for information returns please call Marie Jett at (317) 241-2999.