Instructions For Forms W-2 And W-3 - Wage And Tax Statement And Transmittal Of Wage And Tax Statements - 2016 Page 10

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Golden parachute payments (not applicable to
Health flexible spending arrangement (FSA). For plan
Forms W-2AS, W-2CM, W-2GU, or W-2VI). Include any
year 2016, a cafeteria plan may not allow an employee to
golden parachute payments in boxes 1, 3, and 5 of Form
request salary reduction contributions for a health FSA in
W-2. Withhold federal income, social security, and
excess of $2,550 (as indexed for inflation).
Medicare taxes (or railroad retirement taxes, if applicable)
If a cafeteria plan timely complies with the written plan
as usual and report them in boxes 2, 4, and 6,
requirement limiting health FSA salary reduction
respectively. (Use box 14 if railroad retirement taxes
contributions, but one or more employees are erroneously
apply.) Excess parachute payments are also subject to a
allowed to elect a salary reduction of more than $2,550 for
20% excise tax. If the excess payments are considered
a plan year, the cafeteria plan will continue to be a section
wages, withhold the 20% excise tax and include it in box 2
125 cafeteria plan for that plan year if:
as income tax withheld. Also report the excise tax in
The terms of the plan apply uniformly to all participants,
box 12 with code K. For definitions and additional
The error results from a reasonable mistake by the
information, see Regulations section 1.280G-1 and Rev.
employer (or the employer’s agent) and is not due to
Proc. 2003-68, 2003-34 I.R.B. 398, available at
willful neglect by the employer (or the employer’s agent),
and
Government employers. Federal, state, and local
Salary reduction contributions in excess of $2,550 are
governmental agencies have two options for reporting
paid to the employee and reported as wages for income
their employees' wages that are subject to only Medicare
tax withholding and employment tax purposes on the
employee’s Form W-2 (or Form W-2c) for the employee’s
tax for part of the year and both social security and
taxable year in which, or with which, ends the cafeteria
Medicare taxes for part of the year.
plan year in which the correction is made.
The first option (which the SSA prefers) is to file a
single set of Forms W-2 per employee for the entire year,
The salary reduction contribution limit of $2,550
even if only part of the year's wages are subject to both
does not include any amount (up to $500) carried
!
social security and Medicare taxes. Check “941” (or “944”)
over from a previous year.
CAUTION
in box b of Form W-3 or check “941-SS” in box b of Form
For more information, see Notice 2012-40, 2012-26
W-3SS. The wages in box 5 of Form W-2 must be equal to
I.R.B. 1046, available at
or greater than the wages in box 3 of Form W-2.
ar09.html
and Notice 2013-71, 2013-47 I.R.B. 532
The second option is to file one set of Forms W-2 for
available at
wages subject only to Medicare tax and another set for
wages subject to both social security and Medicare taxes.
Health savings account (HSA). An employer's
Use a separate Form W-3 to transmit each set of Forms
contribution (including an employee's contributions
W-2. For the Medicare-only Forms W-2, check “Medicare
through a cafeteria plan) to an employee's HSA is not
govt. emp.” in box b of Form W-3. For the Forms W-2
subject to federal income tax withholding or social
showing wages subject to both social security and
security, Medicare, or railroad retirement taxes (or FUTA
Medicare taxes, check “941” (or “944”) in box b of Form
tax) if it is reasonable to believe at the time of the payment
W-3 or check “941-SS” in box b of Form W-3SS. The
that the contribution will be excludable from the
wages in box 5 of Form W-2 must be equal to or greater
employee's income. However, if it is not reasonable to
than the wages in box 3 of Form W-2.
believe at the time of payment that the contribution will be
excludable from the employee's income, employer
Group-term life insurance. You must include in boxes
contributions are subject to federal income tax
1, 3, and 5 (or 14, if railroad retirement taxes apply) the
withholding, social security and Medicare taxes (or
cost of group-term life insurance that is more than the cost
railroad retirement taxes, if applicable), and FUTA tax,
of $50,000 of coverage, reduced by the amount the
and must be reported in boxes 1, 3, and 5 (use box 14 if
employee paid toward the insurance. Use Table 2-2 in
railroad retirement taxes apply), and on Form 940,
Pub. 15-B to determine the cost of the insurance. Also,
Employer's Annual Federal Unemployment (FUTA) Tax
show the amount in box 12 with code C. For employees,
Return.
you must withhold social security and Medicare taxes, but
You must report all employer contributions (including
not federal income tax. For coverage provided to former
an employee's contributions through a cafeteria plan) to
employees, the former employees must pay the employee
an HSA in box 12 of Form W-2 with code W. Employer
part of social security and Medicare taxes (or railroad
contributions to an HSA that are not excludable from the
retirement taxes, if applicable) on the taxable cost of
income of the employee also must be reported in boxes 1,
group-term life insurance over $50,000 on Form 1040.
3, and 5. (Use box 14 if railroad retirement taxes apply.)
You are not required to collect those taxes. However, you
must report the uncollected social security tax (or railroad
An employee's contributions to an HSA (unless made
retirement taxes, if applicable) with code M and the
through a cafeteria plan) are includible in income as
uncollected Medicare tax (or RRTA Medicare tax, if
wages and are subject to federal income tax withholding
applicable) with code N in box 12 of Form W-2. However,
and social security and Medicare taxes (or railroad
any uncollected Additional Medicare Tax (on the cost of
retirement taxes, if applicable). Employee contributions
group-term life insurance, which, in combination with other
are deductible, within limits, on the employee's Form
wages, is in excess of $200,000) is not reported with code
1040. For more information about HSAs, see Notice
N in box 12.
2004-2, Notice 2004-50, and Notice 2008-52. Notice
2004-2, 2004-2 I.R.B. 269, is available at
2004-02_IRB/ar09.html. Notice 2004-50, 2004-33 I.R.B.
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General Instructions for Forms W-2 and W-3 (2016)

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