In the grand days of economic stimulus, specifically, tax year 2010, employers were allowed a one-year exemption from paying Social Security tax on wages paid to qualified new hires. It was a great way to encourage the employment of the long-term jobless. We mention this bit of history because the period for claiming this 2010 Social Security tax exemption expires April 15, 2014, a deadline of significance to employers as well as the IRS.
Ernst & Young LLP reports that some employers began receiving notices under the IRS/SSA Combined Annual Wage Reporting (CAWR) program notifying them that the Social Security wages shown as exempt under the HIRE Act on Forms 941/941-X was higher than the HIRE Act exempt wages reported on Forms W-2, box 12, code CC.
If, by April 15, 2014, employers do not file Forms W-2c (Box 12, code CC) that reconcile to Forms 941/941-X, or file Forms 941-X to correct the overstatement, the IRS will reclaim Social Security tax of 6.2% of the wage difference, plus interest and penalty.
What employers need to do now
1. Verify that the wages reported on the 2010 Forms 941 as excluded from Social Security tax under the HIRE Act agree with the HIRE Act wages reported on the 2010 Forms W-2, box 12, code CC. Similarly, timely respond to IRS/SSA CAWR notices promptly, and file necessary adjustments. These steps should be taken before April 15, 2014.
2. If employers failed to file for the HIRE Act payroll tax exemption, they have until April 15, 2014 to file Forms 941-X (and Forms W-2c) to claim the credit. Keep in mind that Forms W-11 must be obtained from qualified employees before claiming the credit.