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1042ez 1. 1042ez   Organizations Subject to the Tax Table of Contents The tax on unrelated business income applies to most organizations exempt from tax under section 501(a). 1042ez These organizations include charitable, religious, scientific, and other organizations described in section 501(c), as well as employees' trusts forming part of pension, profit-sharing, and stock bonus plans described in section 401(a). 1042ez In addition, the following are subject to the tax on unrelated business income. 1042ez Individual retirement arrangements (IRAs), including traditional IRAs, Roth IRAs, Coverdell IRAs, simplified employee pensions (SEP-IRAs), and savings incentive match plans for employees (SIMPLE IRAs). 1042ez State and municipal colleges and universities. 1042ez Qualified state tuition programs. 1042ez Medical savings accounts (MSAs) described in section 220(d). 1042ez Coverdell savings accounts described in section 530. 1042ez U. 1042ez S. 1042ez instrumentalities. 1042ez   A corporation that is a U. 1042ez S. 1042ez instrumentality described in section 501(c)(1) is not subject to the tax on unrelated business income if the corporation is organized under an Act of Congress and, under the Act, is exempt from federal income taxes. 1042ez Colleges and universities. 1042ez   Colleges and universities that are agencies or instrumentalities of any government or any political subdivision of a government, or that are owned or operated by a government or political subdivision of a government, are subject to the tax on unrelated business income. 1042ez As used here, the word government includes any foreign government (to the extent not contrary to a treaty) and all domestic governments (the United States and any of its possessions, any state, and the District of Columbia). 1042ez   The tax is on the unrelated business income of both the universities and colleges themselves and on their wholly owned tax exempt subsidiary organizations. 1042ez It is immaterial whether the business is conducted by the university or by a separately incorporated wholly owned subsidiary. 1042ez If the business activity is unrelated, the income in both instances will be subject to the tax. 1042ez If the primary purpose of a wholly owned subsidiary is to operate or conduct any unrelated trade or business (other than holding title to property and collecting income from it), the subsidiary is not an exempt organization, and this rule does not apply. 1042ez Title-holding corporations. 1042ez   When an exempt title-holding corporation, described in section 501(c)(2), pays any of its net income to an organization that itself is exempt from tax under section 501(a) (or would pay such an amount except that the expenses of collecting its income exceed the amount collected) and files a consolidated return with that organization, the title-holding corporation is treated, for unrelated business income tax purposes, as organized and operated for the same purposes as the exempt payee organization. 1042ez   Thus, a title-holding corporation whose source of income is related to the exempt purposes of the payee organization is not subject to the unrelated business income tax if the holding corporation and the payee organization file a consolidated return. 1042ez However, if the source of the income is not so related, the title-holding corporation is subject to unrelated business income tax. 1042ez Example. 1042ez X, a title-holding corporation, is required to distribute its net income to A, an exempt organization. 1042ez During the tax year, X realizes net income of $900,000 from source M, which is related to A's exempt function. 1042ez X also receives $100,000 from source N, which is not related to A's exempt function. 1042ez X and A file a consolidated return for the tax year. 1042ez X has unrelated business income of $100,000. 1042ez Prev  Up  Next   Home   More Online Publications
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1042ez Publication 957 - Main Content Table of Contents 1. 1042ez What is Back Pay?Reporting Back Pay Back Pay Under a Statute Nonstatutory Back Pay Format for Report to the SSA Questions 2. 1042ez Special Wage PaymentsReporting Special Wage Payments Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments Nonqualified Deferred Compensation and Section 457 Plans Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) PlansSpecial rule for box 11 of Form W-2 (distributions and deferral in the same year). 1042ez 1. 1042ez What is Back Pay? Back pay is pay received in a tax year(s) for actual or deemed employment in an earlier tax year(s). 1042ez For social security coverage and benefit purposes, all back pay, whether or not under a statute, is wages if it is payment for covered employment. 1042ez Damages for personal injury, interest, penalties, and legal fees included with back pay awards are not wages. 1042ez Report all back pay. 1042ez However, the tax year(s) for which back pay is credited as wages for social security purposes is different if it is awarded under a statute. 1042ez See Back Pay Under a Statute , later, for more information. 1042ez Reporting Back Pay The Internal Revenue Service (IRS) and the SSA consider back pay awards to be wages. 1042ez However, for income tax purposes, the IRS treats all back pay as wages in the year paid. 1042ez Employers should use Form W-2, Wage and Tax Statement, or electronic wage reports to report back pay as wages in the year they actually pay the employee. 1042ez The SSA no longer accepts reports on tapes, cartridges, and diskettes. 1042ez Example. 1042ez In 2012, Terry Morris earned wages of $50,000. 1042ez In the same year, she received $100,000 in settlement of a back pay case against her employer that covered the periods January 2007 through December 2011. 1042ez Her employer properly reflected social security wages of $110,100 and Medicare wages of $150,000 on her 2012 Form W-2. 1042ez However, if an employer did not include back pay wages on a previously filed Form W-2, magnetic media, or electronically filed wage report, the employer should prepare a wage correction report, Form W-2c, Corrected Wage and Tax Statement, or electronically filed report, to add the back pay award to the wages previously reported. 1042ez Example. 1042ez If, in the above example, Terry Morris' employer had prepared her 2012 Form W-2 reporting social security and Medicare wages of only $50,000 each, the employer would have to correct that report. 1042ez A Form W-2c correcting the 2012 Form W-2 would show previously reported social security and Medicare wages of $50,000 and the correct amount of $110,100 for social security wages and $150,000 for Medicare wages. 1042ez SSA treatment of back pay under a statute. 1042ez   Under the law, the SSA credits back pay awarded under a statute to an individual's earnings record in the period(s) the wages should have been paid. 1042ez This is important because wages not credited to the proper year may result in lower social security benefits or failure to meet the requirements for benefits. 1042ez   However, back pay under statute payments will remain posted to the employee's social security earnings record in the year reported on Form W-2 (or Form W-2c) unless the employer or employee notifies the SSA (in a separate, special report) of the back pay under a statute payment. 1042ez Then, the SSA can allocate the statutory back pay to the appropriate periods. 1042ez   If a back pay award is not made under a statute, the SSA credits back pay as wages in the year paid. 1042ez    If employers do notify the SSA of this payment, they should prepare a special report (with the information noted below) and send it to: Social Security Administration Attn: CPS Back Pay Staff 7-B-15 SWT 1500 Woodlawn Drive Baltimore, MD 21241-0001 Be sure to send this special report to the above address because the SSA handles it separately from other reports. 1042ez    If you paid the back pay award in the same tax year to which it applies, report the wages on that year's Form W-2. 1042ez No further action is necessary. 1042ez Example. 1042ez In 2012, Judy Wilson received a salary of $30,000 and a back pay under statute award of $2,000 for the period January through June 2012. 1042ez Her employer properly reported wages of $32,000 for social security and Medicare on her 2012 Form W-2. 1042ez No further action is necessary. 1042ez Information the SSA needs to properly credit back pay under a statute (special report). 1042ez   After you complete the special report, you or the employee should send it to the SSA when or after you submit the Form W-2 (on paper or electronically) to the SSA for the year you pay the statutory back pay to the employee. 1042ez There is no statute of limitations on the filing of the special report to enable the SSA to allocate the wages. 1042ez The special report must include the following information. 1042ez The employer's name, address, and employer identification number (EIN). 1042ez A signed statement citing the federal or state statute under which the payment was made. 1042ez If the statute is not identified, the SSA will assume the payment was not under a statute and will not allocate to earlier period(s). 1042ez The name and telephone number of a person to contact. 1042ez The SSA may have additional questions concerning the back pay case or the individual employee's information. 1042ez A list of employees receiving the payment and the following information for each employee: The tax year you paid and reported the back pay. 1042ez The employee's social security number (SSN). 1042ez The employee's name (as shown on his or her social security card). 1042ez The amount of the back pay award excluding any amounts specifically designated otherwise, for example, damages for personal injury, interest, penalties, and legal fees. 1042ez The period(s) the back pay award covers (beginning and ending dates—month and year). 1042ez The other wages paid subject to social security and/or Medicare taxes and reported in the same year as the back pay award (if none, show zero)*. 1042ez Do not include the back pay award shown in that wage report. 1042ez If you originally submitted the report under an establishment number, show that number and the amount of money that is to remain under that establishment number. 1042ez The amount to allocate to each reporting period*. 1042ez This includes any amount you want allocated (if applicable) to the tax year of the award payment. 1042ez If you do not give the SSA specific amounts to allocate, the SSA does the allocation by dividing the back pay award by the number of months or years covered by the award. 1042ez *Note. 1042ez   For periods before January 1, 1978 (before January 1, 1981, for state and local government employers covered by a Section 218 agreement), show the wage amounts for each calendar quarter ending March 31, June 30, September 30, and December 31. 1042ez For all tax years, show and identify the social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) separately. 1042ez MQGE is applicable to federal employees beginning in 1983, and for certain state and local government employees beginning in 1986. 1042ez For tax years 1991 and later, list the social security and Medicare wages separately. 1042ez If you originally reported the individual's wages under an establishment or payroll record unit number, show the amount of wages to remain in the award year for that number and furnish that number to the SSA along with the EIN. 1042ez Back Pay Under a Statute Back pay awarded under a statute is a payment by an employer following an award, determination, or agreement approved or sanctioned by a court or government agency responsible for enforcing a federal or state statute that protects an employee's right to employment or wages. 1042ez Examples of pertinent statutes include: Age Discrimination in Employment Act, Americans with Disabilities Act, Equal Pay Act, Fair Labor Standards Act, National Labor Relations Act, State minimum wage laws, and State statutes that protect rights to employment and wages. 1042ez Payments based on laws that have a similar effect to those listed above also may qualify as payments made under a statute. 1042ez Back pay awards, under some of the statutes listed above, may be compensation for personal injury and not pay for employment. 1042ez Such awards are not wages for social security coverage purposes. 1042ez If a court-approved or sanctioned settlement agreement states that the agreement is not an admission of discrimination, liability, or act of wrongdoing, the statement does not change the nature of a back pay award. 1042ez The payments made in such a settlement may still be back pay and wages under the rules discussed here. 1042ez Nonstatutory Back Pay A payment for back wages negotiated between an employer and employee without an award, determination, or agreement approved or sanctioned by a court or government agency, the payment is not made under a statute. 1042ez Delayed wage payments and retroactive pay increases resulting from union negotiation or payments under local ordinances or regulations are back pay and are wages. 1042ez However, they are not payments made under a statute. 1042ez If you are uncertain whether the back pay award was under a qualified statute, you may need to contact your personnel department or legal counsel or the attorney who filed the suit. 1042ez Format for Report to the SSA Use the format shown in Table 1, later, to send the SSA the information needed to properly credit back pay under a statute. 1042ez In a cover letter, include: Name and address of the employer, Statute under which you paid the back pay, Name and telephone number of the employer contact, and Signature of the reporting official. 1042ez Under certain circumstances, back pay may be a special wage payment and excluded from wages counted under the social security earnings test. 1042ez If you pay back pay to an employee age 61 or older, report it to the SSA in accordance with this section. 1042ez Read Special Wage Payments, later, for additional reporting instructions. 1042ez Questions If you have questions concerning back pay under a statute, call the SSA at 1-800-772-6270. 1042ez Exception. 1042ez   If you are a state or local government employer who was covered by an agreement under Section 218 of the Social Security Act before January 1, 1987, and you paid a back pay award before January 1, 1987, which you did not report to the SSA, contact your state Social Security Administrator's office. 1042ez Table 1. 1042ez Format for Report (Under Covering Letter) to Request SSA to Allocate Back Pay Under Statute Wages Employer's EIN: xx-xxxxxxx Tax Year in Which Award Payment Was Paid: 2012 (1) SSN and Employee Name (2)1 Award Amount and Period(s) (3)2,3 Other Soc. 1042ez Sec. 1042ez /Med. 1042ez Wages Paid In Award Year (4)3 Allocation     Soc. 1042ez Sec. 1042ez Med. 1042ez /MQGE Year Soc. 1042ez Sec. 1042ez Med. 1042ez /MQGE xxx-xx-xxxx HELEN T. 1042ez SMITH $100,000 1/2009 - 12/2012 $40,000 $40,000 2009 2010 2011 2012 $20,000 25,000 27,000 28,000 $20,000 25,000 27,000 28,000 xxx-xx-xxxx SAM W. 1042ez EVANS 30,000 7/89-12/91 -0- -0- 1989 1990 1991   6,000 12,000 12,000 xxx-xx-xxxx ROLAND S. 1042ez ADAMS 15,000 7/80-12/81 -0- -0- 9/80 12/80 1981 3,500 3,500 8,000   1Exclude amounts specifically designated as damages, penalties, etc. 1042ez  2Exclude the amount of back pay, if any, included in that amount. 1042ez  3For periods before January 1, 1978 (and for state and local government (Section 218) employers before January 1, 1981), show the wage amounts by calendar quarters. 1042ez The social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) must be shown separately FOR ALL YEARS. 1042ez (Wages subject ONLY to MQGE would be shown in the Medicare/MQGE column; no wages would be shown in the Soc. 1042ez Sec. 1042ez column. 1042ez ) For tax years 1991 and later, the social security and Medicare wages must be listed separately. 1042ez Explanation of examples. 1042ez Helen T. 1042ez Smith–The back pay award, excluding interest, was $100,000 for the periods 1/2009-12/2012. 1042ez In 2012, this employee was also paid $40,000 in other wages. 1042ez (Her Form W-2 for 2012 reported $110,100 for social security and $140,000 for Medicare. 1042ez The SSA allocation will result in adjusted posted wages of $68,000 for social security and $68,000 for Medicare for 2012. 1042ez ) Sam W. 1042ez Evans–The back pay award was $30,000 for the periods 7/89-12/91. 1042ez This employee was hired in 1989 and was subject to MQGE only. 1042ez He was no longer employed by this governmental employer in 2012. 1042ez (His Form W-2 for 2012 reported $30,000 for social security and $30,000 for Medicare. 1042ez After the SSA allocation, he will not have any net posted wages for 2012. 1042ez ) Roland S. 1042ez Adams–The back pay award was $15,000 for the periods 7/80-12/81. 1042ez He was no longer employed by this state and local government (Section 218) employer in 2012. 1042ez (His Form W-2 for 2012 reported $15,000 for social security and $15,000 for Medicare; after the SSA allocation, he will not have any net posted wages for 2012. 1042ez ) If the state Social Security Administrator's office needs more information, they can contact the SSA at the following address:   Social Security Administration Office of Income Security Programs Office of Earnings and Program Integrity Policy 6401 Security Boulevard 2506 OPS Baltimore, MD 21235 2. 1042ez Special Wage Payments A special wage payment (SWP) is an amount paid by an employer to an employee (or former employee) for services performed in a prior year. 1042ez Employers should report to the SSA special wage payments made to employees and former employees who are recipients of social security retirement benefits. 1042ez Special wage payments made to a retired employee receiving social security or to an employee who continues to work while receiving social security benefits may reduce the benefits the individual receives if not reported to the SSA. 1042ez Special wage payments may include (but are not limited to): Accumulated sick and vacation pay, Back pay, Bonuses, Deferred compensation, Payments because of retirement, Sales commissions, Severance pay, and Stock options. 1042ez Note. 1042ez Payments made after retirement that are part of the normal payroll cycle should not be routinely reported as special wage payments. 1042ez Earnings Test. 1042ez   Benefits paid to a social security beneficiary under full retirement age may be reduced if the beneficiary continues to work. 1042ez The SSA uses the information in boxes 1, 3, and 5 of Form W-2 to determine the beneficiary's current year earnings. 1042ez Special wage payments, which are for services performed in a prior year, will increase the current year earnings on Form W-2, which also may result in a reduction in the beneficiary's benefits. 1042ez If a benefit is reduced because of a special wage payment, the beneficiary must get documentation from the employer before the SSA can restore the deducted portion. 1042ez Therefore, employer reports of special wage payments help prevent incorrect benefit reductions. 1042ez Reporting Special Wage Payments Employers must report special wage payments for income tax purposes and social security and Medicare taxes in the year received. 1042ez Report income, social security, and/or Medicare taxes for special wage payments on Form W-2. 1042ez See Nonqualified Deferred Compensation and Section 457 Plans, later, for reporting nonqualified deferred compensation plan deferrals and payments on Form W-2. 1042ez In addition, report to the SSA special wage payments made during the reporting year to retired employees and employees who continue to work while receiving social security benefits. 1042ez Submit reports after the close of the tax year. 1042ez To avoid delays in processing, submit reports in time to reach the SSA by April 1. 1042ez Use one of the following reporting methods. 1042ez Electronic reporting. 1042ez   Special wage payment files can be sent electronically by logging onto Business Services Online (BSO) via the socialsecurity. 1042ez gov website. 1042ez BSO enables organizations and authorized individuals to conduct business with and submit confidential information to the Social Security Administration. 1042ez You must register to use this website. 1042ez The web address is www. 1042ez socialsecurity. 1042ez gov/bso/bsowelcome. 1042ez htm. 1042ez   Use the specifications and record layout shown in  Table 2, later. 1042ez Only one file at a time may be submitted. 1042ez If your file is large (>10MB), or you have a slow internet connection, the transmission will be faster if the file is zipped. 1042ez A zipped file contains a file that has been compressed to reduce its file size. 1042ez WinZip and PKZIP are examples of acceptable compression packages. 1042ez   Electronic submissions not meeting the specifications in Table 2 will be rejected. 1042ez Paper listing. 1042ez   A paper listing can be used to report special wage payments to several employees. 1042ez Use the format shown in Table 3, later. 1042ez Submit paper listings to the local SSA office nearest your place of business. 1042ez Visit www. 1042ez socialsecurity. 1042ez gov/locator to find a Social Security office near you. 1042ez Form SSA-131. 1042ez   Use Form SSA-131 to report special wage payments made to an employee. 1042ez Also use this form to report nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in box 11 of Form W-2. 1042ez    This image is too large to be displayed in the current screen. 1042ez Please click the link to view the image. 1042ez Publication 957 Reporting Back Pay to the Social Security Administration Instructions for Form SSA–131   EMPLOYER INSTRUCTIONS FOR COMPLETING SPECIAL WAGE PAYMENT FORM 1. 1042ez Provide the EIN that was used or will be used to report the employee's wages on the Form W-2. 1042ez 2. 1042ez Enter the date the employee retired. 1042ez Enter “Not Retired” if the employee has not retired. 1042ez 3. 1042ez Enter the date that the employee last performed services; was not expected to return to work; and was not subject to recall to render additional services. 1042ez This date should be the same as or earlier than the date in item “2”. 1042ez Enter “Not Retired” if the employee has not retired. 1042ez 4. 1042ez Enter the wages that were paid to the employee in the tax year that were for services that were performed in years prior to the tax year or that were paid on account of retirement. 1042ez  Examples (not all inclusive) of payments to be included: Payments in lieu of vacation that were earned in a year prior to the tax year. 1042ez Accumulated sick payments which were paid in a lump sum based on “retirement” as the sole condition of payment. 1042ez Accumulated sick payments paid at or after the date in item 3, which were earned in a year prior to the tax year. 1042ez Payments “on account of retirement”–dismissal, severance or termination pay paid because of retirement. 1042ez Bonuses which are paid pursuant to a prior contract, agreement or promise causing the employee to expect such payments regularly; or announced to induce the employee to work more steadily, rapidly or efficiently or to remain with the employer. 1042ez Stock Options. 1042ez   Do not include in item “4” payments: For annual, sick, holiday, or vacation pay if used (absence from work) prior to the date of retirement (earlier of items “2” or “3”). 1042ez That were reported or will be reported under “Nonqualified Plans” on the Form W-2. 1042ez That were deducted from the employee's wages and paid to a deferred compensation plan (e. 1042ez g. 1042ez , 401k). 1042ez Employees health and dental plan benefits (non-covered/non-taxable for Social Security Wages). 1042ez Bonuses earned and paid in the tax year. 1042ez 5. 1042ez Check whether payments listed in item 4 will be made for years after the tax year. 1042ez If yes, please show the amounts and years in which these will be paid, if known. 1042ez 6. 1042ez Nonqualified deferred compensation and section 457 plans only. 1042ez If you were unable to report nonqualified deferred compensation or section 457 plan payments and deferrals (contributions) on Form W-2 because both payments and deferrals occurred during the year, show the amount of wages earned by the employee during the tax year. 1042ez Generally, the wages earned will be the compensation reported in block 1 of Form W-2 less payments from a nonqualified deferred compensation (or 457) plan, but including any amounts deferred under the plan during the tax year (See IRS Publication 957). 1042ez Paperwork/Privacy Act Notice: This report is authorized by regulation 20 CFR 404. 1042ez 702. 1042ez The information that you provide will be used in making a determination regarding the amount of Social Security benefits payable to the above named individual. 1042ez While your response is voluntary, if you do not respond we may not be able to make a correct determination regarding the amount of Social Security benefits payable to the above named individual for the year in question. 1042ez We may also use the information you give us when we match records by computer. 1042ez Matching programs compare our records with those of other Federal, State, or local government agencies. 1042ez Many agencies may use matching programs to find or prove that a person qualifies for benefits paid by the Federal Government. 1042ez The law allows us to do this even if you do not agree to it. 1042ez Explanations about these and other reasons why information you provide us may be used or given out are available in Social Security Offices. 1042ez If you want to learn more about this, contact any Social Security Office. 1042ez The Paperwork Reduction Act: This information collection meets the clearance requirements of 44 U. 1042ez S. 1042ez C. 1042ez §3507, as amended by Section 2 of the Paperwork Reduction Act of 1995. 1042ez You are not required to answer these questions unless we display a valid Office of Management and Budget control number. 1042ez We estimate that it will take you about 20 minutes to read the instructions, gather the necessary facts, and answer the questions. 1042ez Form SSA-131 (8-2001) EF (06-2002)   Submit Form SSA-131 to the SSA office nearest your place of business. 1042ez Or, the employee can submit it to the SSA office handling the claim. 1042ez You or the employee must submit this form before the SSA can exclude the special wage payments for purposes of the earnings test. 1042ez If reporting on more than one employee, complete a separate Form SSA-131 for each employee or use the paper listing format (except for reporting nonqualified and section 457 plan deferrals and payments) in Table 3. 1042ez Do not report payments from nonqualified deferred compensation or section 457 plans that were reported in box 11 of Form W-2. 1042ez Use Form SSA-131 if deferrals to and payments from nonqualified or section 457 plans occurred during the tax year. 1042ez Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments A nonstatutory (nonqualified) option to purchase stock which is exercised in a year after the year in which the option was earned is a special wage payment. 1042ez It should not count for the social security earnings test. 1042ez Nonstatutory (nonqualified) options exercised as special wage payments by retired employees or employees who continue to work while receiving social security benefits should be reported by employers using the above reporting methods. 1042ez Nonqualified Deferred Compensation and Section 457 Plans A nonqualified deferred compensation plan is a plan or arrangement established and maintained by an employer for one or more of its employees that provides for the deferral of compensation, but does not meet the requirements for a tax-qualified deferred compensation plan. 1042ez For social security and Medicare purposes, deferred compensation plans for employees of state and local governments (section 457 plans) are treated the same as nonqualified plans. 1042ez Nonqualified and section 457 plans are reported differently than other special wage payments. 1042ez See Reporting Amounts Deferred to Nonqualified and Section 457 Plans below for specific instructions. 1042ez Reporting Amounts Deferred to Nonqualified and Section 457 Plans Generally, when the related services are performed, nonqualified deferred compensation is subject to social security and Medicare tax when deferred. 1042ez However, if nonqualified and section 457 plans contain provisions that delay the employee's right to receive payments from the plan, a period of substantial risk of forfeiture exists. 1042ez The plans' deferrals, or contributions, are not subject to social security and Medicare taxes until the period of substantial risk of forfeiture ends. 1042ez No risk of forfeiture. 1042ez   If there is no risk of forfeiture, report wage amounts deferred to a nonqualified deferred compensation or section 457 plan in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. 1042ez Example. 1042ez Company X's nonqualified deferred compensation plan allows the deferral of up to $20,000 of employee salaries each year. 1042ez The plan has no risk of forfeiture. 1042ez In 2012, Employee A defers $20,000 to the plan from a total salary of $200,000. 1042ez Form W-2 Completion Amount Box 1 $200,000 Box 3* 110,100 Box 5 200,000 *Wage base maximum for tax year 2012 Risk of forfeiture lapses before retirement. 1042ez   If the substantial risk of forfeiture lapses before the employee retires, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. 1042ez The accumulated deferrals are reported along with any other social security and Medicare wages earned during the year. 1042ez   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. 1042ez If the employee continues working, future deferrals are social security and Medicare wages when they are earned. 1042ez    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. 1042ez Risk of forfeiture lapses at retirement. 1042ez   When an employee's right to a payment is contingent upon working until retirement, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, as social security and/or Medicare wages in the year of retirement. 1042ez Add the amount to other wages paid in that year, and enter in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. 1042ez   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. 1042ez    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. 1042ez Example—risk of forfeiture. 1042ez At the end of the risk-of-forfeiture period for Company Y's nonqualified deferred compensation plan, Employee B's accumulated deferrals, plus interest earned by the plan, are $120,000, not including B's $20,000 deferral for this year. 1042ez B's wages, including this year's deferred amount, are $80,000. 1042ez Form W-2 Completion Amount Box 1 $60,000 Box 3* 110,100 Box 5 200,000 Box 11 120,000 *Wage base maximum for tax year 2012 Reporting Payments From Nonqualified and Nongovernmental Section 457 Plans When an employee or former employee retires and begins receiving payments (distributions) from a nonqualified or nongovernmental section 457 plan, report the payments in boxes 1 and 11 of Form W-2. 1042ez Report payments (distributions) from a governmental section 457 plan on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 1042ez Example. 1042ez Employee D retired from the XYZ company and began receiving social security benefits. 1042ez XYZ paid D a $12,000 bonus upon retirement for sales made in a prior year, and D received $25,000 in payments from XYZ's nonqualified deferred compensation plan. 1042ez In addition, D agreed to continue performing services for XYZ, but on a part-time basis for wages of $15,000 per year. 1042ez D made no deferrals to the nonqualified plan this year. 1042ez Form W-2 Completion Amount Box 1 $52,000 Box 3 27,000 Box 5 27,000 Box 11 25,000 Report the $12,000 bonus to the SSA using electronic reporting, a paper listing, or Form SSA-131. 1042ez For more information, see Reporting Special Wage Payments , earlier. 1042ez Reporting Payments and Deferrals in the Same Year Do not complete box 11 when payments (distributions) are made from a nonqualified plan and deferrals are reported in boxes 3 and/or 5 of Form W-2 (including current year deferrals). 1042ez Report to the SSA on Form SSA-131 the total amount the employee earned during the tax year. 1042ez Normally, the amount earned is the amount reported in box 1 of Form W-2 less payments from a nonqualified or section 457 plan, but including any amounts deferred under the plan during the tax year. 1042ez See Form SSA-131 and its instructions, earlier. 1042ez Example. 1042ez Employee K retired this year from Company XYZ and began receiving social security benefits. 1042ez During the year he earned wages of $50,000 and deferred $35,000 of the wages into the company's nonqualified deferred compensation plan. 1042ez K also received $75,000 in payments from the company's nonqualified plan. 1042ez Form W-2 Completion Amount Special Wage Payment $75,000 Wages 50,000 Minus: deferral 35,000 Total reported in Box 1 $90,000     Wages including deferral reported in  Boxes 3 and 5 $50,000     Leave Box 11 blank. 1042ez File Form SSA-131 -0-     Form SSA-131 Completion Amount from Box 1 of Form W-2 $90,000 Minus: payments from a nonqualified plan 75,000 Plus: amounts deferred into the plan during the year 35,000 Total wages earned for purposes of Form SSA-131 (item 6) $50,000 Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) Plans It is not necessary to show amounts deferred during the year under an NQDC plan subject to section 409A. 1042ez If you report section 409A deferrals, show the amount in box 12 of Form W-2 using code Y. 1042ez For more information, see Notice 2008-115, 2008-52 I. 1042ez R. 1042ez B. 1042ez 1367, available at www. 1042ez irs. 1042ez gov/irb/2008-52_IRB/ar10. 1042ez html. 1042ez Special reporting rules apply when an NQDC plan is not compliant with section 409A (when there has been a “plan failure”). 1042ez Income included under section 409A from an NQDC plan is reported in box 1 and box 12 of Form W-2 using code Z. 1042ez See Notice 2008-115. 1042ez The following examples use small dollar amounts for illustrative purposes. 1042ez However, the amount reported in box 3 of Form W-2 is always limited by the social security earnings wage base (for example, $110,100 for 2012). 1042ez The term “vested” in the following examples means that the amount deferred is not subject to a substantial risk of forfeiture. 1042ez Conversely, the term “not vested” means that the amount deferred is subject to a substantial risk of forfeiture. 1042ez The examples assume that the NQDC plan is in compliance with section 409A, and that amounts deferred under the plan are not includible in gross income as they are deferred. 1042ez For purposes of the examples, it is assumed that the regular pay of the employee is remuneration for employment and wages for employment tax purposes except to the extent the deferral of a portion of the regular pay results in a reduction in wages. 1042ez Example 1: Deferral that is immediately vested (no substantial risk of forfeiture) with no distributions and no vesting of prior-year deferrals. 1042ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into her employer’s NQDC plan. 1042ez The deferral of $20 was vested upon deferral and there was an employer match of $10 under the plan, which was also vested. 1042ez Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10. 1042ez Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 vested deferral) $180 Box 3 ($200 Regular pay plus $10 Employer match, vested) 210 Box 5 ($200 Regular pay plus $10 Employer match, vested) 210 Box 11 -0- Example 2: Deferral with delayed vesting (substantial risk of forfeiture) of employee and employer portions (no distributions and no vesting of prior-year deferrals). 1042ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. 1042ez The deferral of $20 was not vested upon deferral, and there was an employer match of $10 under the plan, which was also not vested. 1042ez Regular pay = $200; Deferral, not vested = $20; Employer match, not vested = $10. 1042ez Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, not vested) $180 Box 3 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 5 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 11 -0- Example 3: Deferral that is immediately vested with prior-year deferrals and investment earnings on the prior-year deferrals that are now vesting (no distributions). 1042ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. 1042ez The deferral of $20 was vested upon deferral. 1042ez During the year, $100 of prior-year deferrals and $15 of investment earnings on the $100 of prior-year deferrals became vested. 1042ez Regular pay = $200; Deferral, vested = $20; Vesting of prior-year deferrals = $100; Vesting of investment earnings on $100 of prior-year deferral = $15. 1042ez Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, vested) $180 Box 3 ($200 Regular pay plus $100 vested prior-year deferral plus $15 earnings on deferral) 315 Box 5 ($200 Regular pay plus $100 vested prior-year deferral plus $15 vested investment earnings on prior year deferral) 315 Box 11 ($100 vested prior-year deferral plus $15 earnings) 115 Example 4: No deferrals but there are distributions (no vesting of prior-year deferrals). 1042ez For the year, the employee’s regular pay was $100, and the employee deferred no pay into the employer’s NQDC plan. 1042ez There was no vesting of prior-year deferrals under the plan. 1042ez During the year, there were total distributions of $50 from the plan to the employee. 1042ez Regular pay = $100; Distribution = $50. 1042ez Form W-2 Completion Amount Box 1 ($100 Regular pay plus $50 Distribution) $150 Box 3 ($100 Regular pay ) 100 Box 5 ($100 Regular pay) 100 Box 11 ($50 Distribution) 50 Special rule for box 11 of Form W-2 (distributions and deferral in the same year). 1042ez   If, in the same year, there are NQDC distributions and there are deferrals that are reportable in boxes 3 and/or 5 (current or prior-year deferrals) of Form W-2, do not complete box 11. 1042ez Instead, report on Form SSA-131 the total amount the employee earned during the year. 1042ez * Submit the SSA-131 to the nearest SSA office or give it to the employee. 1042ez   *Generally, the amount earned by the employee during the tax year for purposes of item 6 of Form SSA-131 is the amount reported in box 1 of Form W-2 plus current-year deferrals that are vested (employee and employer portions) less distributions. 1042ez Do not consider prior-year deferrals that are vesting in the current year. 1042ez If there was a plan failure, the box 1 amount in this calculation should be as if there were no plan failure. 1042ez Example 5: Deferral that is immediately vested and there are distributions (no vesting of prior-year deferrals). 1042ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 1042ez There was also an employer match of $10. 1042ez The deferral and employer match were vested upon deferral. 1042ez There was no vesting of prior-year deferrals under the plan. 1042ez During the year, there were total distributions of $50 from the plan to the employee. 1042ez Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10; Distribution = $50. 1042ez Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, vested) $230 Boxes 3 and 5 ($200 Regular pay plus $10 vested employer match) 210 Leave Box 11 blank. 1042ez File Form SSA-131 -0-     Form SSA-131 Completion Item 6 - amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $30 vested current year employee deferral and employer match) $210 Example 6: Deferral with delayed vesting and there are distributions (no vesting of prior-year deferrals). 1042ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 1042ez The deferral was not vested upon deferral. 1042ez There was no vesting of prior-year deferrals under the plan. 1042ez During the year, there were total distributions of $50 from the plan to the employee. 1042ez Regular pay = $200; Deferral, not vested = $20; Distribution = $50. 1042ez Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay minus $20 deferral that is not vested) 180 Box 11 ($50 Distribution). 1042ez 50 Example 7: Deferral that is immediately vested and there are distributions (also vesting of prior-year deferrals and earnings on those prior-year deferrals). 1042ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 1042ez The deferral was vested upon deferral. 1042ez There was vesting of $100 of prior-year deferrals and $15 of earnings on the $100 prior-year deferral under the plan. 1042ez During the year, there were total distributions of $50 from the plan to the employee. 1042ez Regular pay = $200; Deferral, vested = $20; Distribution = $50; Vesting of prior-year deferrals ($100) and earnings on those prior-year deferrals ($15) = $115. 1042ez Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 vested deferral $230 Boxes 3 and 5 ($200 Regular pay Plus $115 vested prior deferral (with vested earnings on the deferral)) 315 Leave Box 11 blank. 1042ez File Form SSA-131 -0-     Form SSA-131 Completion Item 6, amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $20 vested current year deferral) $200 Example 8: Deferral with delayed vesting and there are distributions (vesting of prior-year deferrals, including employer matches, and earnings on those deferrals). 1042ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 1042ez The deferral was not vested upon deferral. 1042ez There was also vesting of prior-year deferrals and employer matches and earnings on these amounts under the plan ($115). 1042ez During the year, there were total distributions of $50 from the plan to the employee. 1042ez Regular pay = $200; Deferral, not vested = $20; Distribution = $50; Vesting of prior-year deferrals and employer match = $100 plus earnings on that $100 of $15. 1042ez Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay plus $115 vested prior-year deferral and prior year employer match and earning on the prior year amounts minus $20 deferral that is not vested) 295 Leave Box 11 blank. 1042ez File Form SSA-131 -0-     Form SSA-131 Completion Item 6 ($230 Amount from Box 1 of Form W-2 minus $50 Distribution) $180 Table 2. 1042ez Specifications for Electronic Reporting of Special Wage Payments Record Position  Field Size   Description Start End 1 3 3 Record Type—must include only the capital letters “SWP” 4 12 9 SSN—must be numeric and may not be all zeros 13 27 15 Last Name—all capitals and no punctuation; may have blanks on right only 28 38 11 First Name—all capitals and no punctuation; may have blanks on right only 39 39 1 Middle Initial—must be either a capital letter or blank 40 48 9 EIN—must be numeric and may not be all zeros 49 59 11 Payment—must be numeric; may not be all zeros; last two digits on right are assumed to be cents; no period or dollar sign 60 63 4 Payment Year—must be only a four-digit year 64 66 3 SSA Office Code—must be numeric and may be all zeros 67 67 1 Payment Type Code—must be the capital letter “T” 68 117 50 Filler  The record format is a fixed length of 117. 1042ez  The file format is ASCII. 1042ez  Submit only one file at a time. 1042ez   Table 3. 1042ez Sample—Paper Listing for Reporting Special Wage Payments to Several Employees Report of Special Wage PaymentsTax Year: Page of A. 1042ez Employer Name: EIN:   Address: Contact Name:     Phone: ( )   . 1042ez 1) B. 1042ez Employee Name: (Last) (First) (MI)   C. 1042ez SSN: D. 1042ez SWP:$ E. 1042ez Type: Other: 2) B. 1042ez Employee Name: (Last) (First) (MI)   C. 1042ez SSN: D. 1042ez SWP:$ E. 1042ez Type: Other: 3) B. 1042ez Employee Name: (Last) (First) (MI)   C. 1042ez SSN: D. 1042ez SWP:$ E. 1042ez Type: Other: 4) B. 1042ez Employee Name: (Last) (First) (MI)   C. 1042ez SSN: D. 1042ez SWP:$ E. 1042ez Type: Other: 5) B. 1042ez Employee Name: (Last) (First) (MI)   C. 1042ez SSN: D. 1042ez SWP:$ E. 1042ez Type: Other:     INSTRUCTIONS:   Enter tax year and page number. 1042ez   A. 1042ez Employer name, employer identification number (EIN), address, the name of a contact person, and a phone number where the contact person can be reached during normal business hours. 1042ez   B. 1042ez Employee's name. 1042ez   C. 1042ez Employee's social security number (SSN). 1042ez   D. 1042ez Total amount of special wage payments made to the employee. 1042ez   E. 1042ez Type of special wage payment from the following list: (1) Vacation Pay, (2) Sick Pay, (3) Severance Pay,  (4) Bonus, (5) Deferred Compensation, (6) Stock Options, and (7) Other—Please explain. 1042ez   Do not use a paper listing for nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in block 11 of Form W-2. 1042ez (Get Form SSA-131. 1042ez )                 Prev  Up  Next   Home   More Online Publications