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January, 2012

NPRC’s Position Regarding Its Letter to Congress On H.R. 3630 - Payroll Tax Relief Proposals

Due to the many questions received concerning our letter of December 19, 2011 regarding a proposed two-month extension of the Social Security tax reduction, NPRC wishes to emphasize the following:

  • NPRC is strictly neutral on whether a reduced Social Security tax rate is necessary or desirable.
  • The concerns of NPRC are not politically motivated. NPRC is non-partisan and not affiliated with any political party.
  • NPRC routinely advises policymakers as to the administrative implications of proposals affecting payroll and payroll tax administration.
  • Enactment of H.R. 3630, as amended on December 16th, would create substantial problems, confusion and costs affecting a significant percentage of U.S. employers and employees.
  • Establishing the proposed Social Security Taxable Wage limit of $18,350, to which a reduced 4.2% rate would apply through February 29, 2012, would require substantial reprogramming of computer systems.
  • Programming of the magnitude that would be required normally takes a minimum of 90 - 180 days for an orderly transition.
  • Programming of systems generally can not begin before the IRS announces what new recordkeeping and reporting will be necessary.
  • Payroll service providers have appropriate resources to respond to such changes and are likely to be the best able of those affected to accommodate such tax law changes. Others may find it more difficult.
  • NPRC proposes several alternatives to achieve the legislation’s goal of extending the reduced Social Security tax rate, as indicated in its letter to Congress.

The NPRC letter was intended to explain in a neutral way the administrative difficulties inherent in the proposal. Interested parties may also wish to contact the American Payroll Association and/or Independent Payroll Providers Association for their assessment.

Sept, 2011

NPRC Releases Study of Employer Wage and W-2 Reporting

In early 2011, IRS Commissioner Shulman presented a new IRS vision for improved information reporting systems, with the ultimate goal that returns such as Forms W-2 and 1099 would be on file with the IRS during the tax season rather than after.  Members of the National Payroll Reporting Consortium subsequently discussed the issues with senior IRS officials, and determined that a background study of the factors involved might be helpful.

Coincidentally, similar questions arose in the context of state unemployment insurance reporting.  As a result of the ARRA of 2009, 22 states adopted a more recent “base period” for qualifying earnings, which put pressure on the quarterly wage reporting systems to make employer-reported wages available sooner.  The issues and questions for both systems were essentially the same.

NPRC asked Ernst & Young to summarize the processes that businesses follow in preparing Forms W-2; challenges businesses face in reporting such information timely; the impact to employers of accelerating current filing deadlines, and policy considerations that may hasten the availability of W-2 and quarterly wage data.  NPRC participated minimally its preparation and the report should not be viewed as a reflection of the views of NPRC or its members.  The study was merely intended to inform those involved in considering IRS Information Reporting improvements. It does not generally offer recommendations, other than noting that the extended March 31 deadline for electronically filed returns could be eliminated without difficulty. 

Ernst & Young also concluded that expanding electronic filing is very effective in achieving more rapid access to such data (e.g., Massachusetts noted that electronically filed wage records are available two days after receipt; whereas paper reports took a month to process). 

NPRC members have been privileged to work with the IRS, SSA and state tax authorities for many years to improve employment tax administration.  NPRC actively supports appropriate electronic filing systems as the most effective way to improve the efficient flow of employment tax returns and related reporting.
Sept, 2011

Industry Disclosure Regs Pending to Safeguard Client Funds

In recent years, there have been a handful of incidents in which a small payroll processing firm failed to pay the employment taxes of its clients. The incidence of such failures is very rare, but each occurrence created significant problems for the affected clients.

Fortunately, technology is already available to address the problem. The IRS Electronic Federal Tax Payment System (EFTPS) makes it easy for businesses to verify federal tax payments made on their behalf. If employers had been aware of and used EFTPS, every past incident would have been detected almost immediately and losses minimized.

The payroll industry trade associations, led by NPRC, worked together to develop standard disclosures that would effectively prevent future losses, and asked the IRS to revise existing regulations to require payroll service providers to make these disclosures at least quarterly. The IRS is considering revised regulations at this time. In the meantime, payroll service providers should consider including the following message prominently within periodic tax reports to clients.

IMPORTANT INFORMATION FROM THE IRS:

The employer is ultimately responsible for the deposit and payment of federal tax liabilities, even if a third party is making the deposits. The IRS recommends that employers enroll in and use EFTPS (Electronic Federal Tax Payment System) to confirm payments made on their behalf. Enroll online at www.eftps.gov, or call 800-555-4477 for an enrollment form.

State tax authorities generally offer similar means to verify tax deposits. Contact the applicable state offices directly for details.

May, 2011
W-2 Reporting Deadlines
IRS Commissioner Shulman announced an initiative to reconsider core information reporting programs (e.g., W-2s & 1099s) to make the data available to the IRS during the tax season, which may involve accelerating employer reporting due dates. NPRC wrote to the commissioner to express support and interest in working with the IRS to consider alternatives.
January, 2011
Implementation of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010
NPRC responded to questions from the Administration about the implementation of H.R. 4853, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312), which was enacted on December 17, 2010 and effective January 1, 2011. The Act affected every U.S. worker and employer, and is notable due to its late enactment relative to the effective date.
NPRC advised the Treasury Department that large payroll service providers are probably the best equipped to handle last-minute tax law changes. Despite significant challenges, the payroll services industry successfully implemented the tax changes on time, and the change was largely seamless to clients and their employees. The Treasury was advised that other employers who may rely on payroll software which is not frequently updated, or that handle payroll calculations manually, may not meet the deadlines.
October, 2010
Final IRS PTIN Regulations Clarify that Reporting Agents are Not Subject
Final IRS Preparer Tax Identification Number (PTIN) regulations were published on September 30. Reporting Agents that do not provide tax advice to clients, and that comply with Rev. Proc 2007-38 are not subject to the regulation. [“A tax return preparer does not include … an individual described in § 301.7701–15(f).”] The PTIN regime for tax preparers generally includes registration, fees, testing for competency and background checks, which might have applied to employees of Reporting Agents.
Reporting Agents that provide tax advice to clients, and/or that do not comply with IRS Rev. Proc 2007-38 should generally register for a PTIN and familiarize themselves with the new PTIN regulations.
September, 2010
Electronic Federal Tax Payments are Mandatory in 2011
IRS regulations expected to be final in December, will eliminate the paper Federal Tax Deposit coupon system, a system that dates back to World War I, according to the IRS.
All but the smallest businesses must use the IRS Electronic Federal Tax Payment System (EFTPS) for all federal tax payments beginning in January 2011. EFTPS is free and easy to use, and can reduce errors. However, employers will face new 10% penalties for taxes not paid electronically, on top of the roughly eight million IRS penalty notices employers receive annually for payroll taxes alone. Payroll tax penalties average over $1,100 per employer annually.
Large payroll service providers have been at the forefront of electronic tax administration since the early 1980’s; generally paying and reporting all client taxes electronically for enhanced accuracy and efficiency.
Given the penalty exposure for non-electronic deposits, those who are converting to EFTPS for the first time should review all related procedures and back-up systems. For example, be sure to register far enough in advance, and consider potential problems like lost passwords, input cutoff times, unexpected absence of responsible individuals, power or Internet interruptions, inclement weather and coordination with tax advisors.
August, 2010
NPRC provides additional comments on IRS PTIN regulations
The IRS issued separate regulations regarding fees for registering as a Return Preparer to obtain a Preparer Tax Identification Number (PTIN). This is related to the March “Preparer” regulations (which excluded Reporting Agents); however, RAs were not excluded from this regulation, and the IRS suggested that NPRC respond to this as well. This letter also addresses a proposal to require background checks for RA employees with access to IRS e-Services.
January, 2010
NPRC Provides Input for IRS Tax Preparer Regulations
NPRC responded to IRS Notice 2009-60, which considers alternatives to improve accountability, knowledge and performance standards for tax preparers, through registration and licensing, testing for competency and knowledge, and continuing education, among other things. The letter explains why Reporting Agents are unique among “return preparers”, and suggests that Reporting Agents should not be included in any broad new oversight provisions designed for individuals who are tax preparers, advisors or other tax professionals.

Government agencies are invited to post announcements, news and other information of interest to the payroll reporting community. There is no charge for this service. Contact us to initiate a posting.
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Last updated January 24, 2012