W-2 REPORTING 2014 December 15, 2014

W2 Reporting Summary

Date: Monday, December 15, 2014 Time: 9:00 a.m. – 12:00 noon Presenters(s): Tina Rodriguez, Marie White

Timeline Schedule

SCOE IT Department Responsibilities

W2 Setup and Processing • December 14 – Load 14.3 Version of Escape into Production (System down until noon.) • December 15 – Load Payroll Detail into W2 formatting (Production/Training) • December 17 – Update and Load Payroll Detail including Supplemental Payroll

Detail into W2 formatting (Production/Training) • December 23 – Update and Load Payroll Detail including December Regular Payroll

Detail into W2 formatting (Production/Training) • January 13 – Run W2 Correction Payroll (Dated 12/25/14) • January 14 - Final load of Payroll Detail into W2 Formatting (A.M.) • January 23-28 – Printing and Folding of W2 Forms • January 28 – Printed W2 Form’s available to the District’s for Pick Up

District Responsibilities

W2 Verification and Payroll Detail Process • December 15 – Verification of Payroll Data • December 15-19 – All Pay Related Corrections made in Production during December

Regular Payroll • December 20 – January 12 – Verification of Payroll Data for W2 Correction Payroll

(NO Pay Related Corrections) • January 12 – W2 Correction Payroll (Dated: 12/25/14) due to SCOE by 12:00 noon • January 14 – FINAL Verification of Payroll W2 Detail • January 14 – W2 Verification Reports due to SCOE by 4:30 p.m.

(Submit Verification Reports by 12 noon or BEFORE) VERIFICATION REPORTS

- Pay01 Payroll Summary - Pay05 Monthly Tax Summary - Pay26a Employer W2 Copy - Pay27 W2 Summary - Pay31 W2 Errors - Pay99 Payroll Snapshot • January 28 – W2’s available to the District’s for Pick Up • January 31 – W2 Forms due to Employees (Mail or Delivery)

Workshop 1. W2 Reporting 2014 mw Last printed 12/12/2014 3:32:00 PM

W-2 Reporting 2014 - Workshop

Pay26a Employer W-2 Copy (11 Month)

PAY26a W-2 Copy (11 Month) HR/Payroll Reports The Pay 26a Employer W-2 Copy reports are currently available from the Production. These reports include all closed payrolls. Districts should begin running this report now. These reports can be run many times to verify that the needed corrections have been made. Each district should review the report for errors to insure the accuracy of employees' W-2 information. The most typical errors include:

• OASDI: The wages subject to the OASDI portion of FICA, multiplied

by the rate (6.2%), do not equal the OASDI contributions. Usually this is the result of an erroneous pay history adjustment.

• MEDI: The wages subject to Medicare, multiplied by the rate

(1.45%), do not equal the Medicare contributions. This usually is the result of an erroneous pay history adjustment.

• NEG: One of the numbers is negative. This can occur as a result of an

erroneous pay history adjustment, or by the timing of a canceled warrant.

• TSA: The employee's TSA contributions exceed the maximum dollar

amount of $17,500 for 2014. Because there can be valid reasons why an employee may exceed the stated limits, this information should be given to the employee with the suggestion to verify the amount with an accountant or tax preparer.

For employees with OASDI, MEDI, or NEG errors, please review the employee's pay history and try to identify the error by date. Contact Erin Graves, SCOE External Payroll to discuss the best method for correcting errors. Usually these adjustments will be done with Z-type add-ons.

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W-2 Reporting 2014 - Workshop

Pay26a Employer W-2 Copy (12 Month)

Run after the December Regular Payroll (12/23/2014) • This report contains 12 month of employee payroll information

(January 2014 through December 2014). • Review this report carefully since this is the basis for the W-2 Form. • Refer to Page 2 for specifications to recheck for accuracy.

W2 Reminders in Summary

• Employee Name, Addresses, SS# Changes

REMINDER: The forms are printed with the employee’s address as of the extract date.

• Make sure to verify that the employee’s names, addresses and SS#’s are correct.

You can obtain a listing of current addresses in ESCAPE Go to: HR/Payroll-Employee Management.

Use the following steps: 1. In ESCAPE, define a reasonable search. 2. From the list create a grid of addresses.

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W-2 Reporting 2014 - Workshop

Adjustments Affecting Pay

Collection or Pay Back from Employees December Regular Payroll: Due by 12/19/2014 @ 12 noon

This is your best opportunity to collect or pay back OASDI/Medicare and or STRS/PERS • Erroneous errors may require Z-OASDI/Z-MEDI and/or Z-STRS/Z-PERS add-ons for

the collection or pay back of OASDI or Medicare Taxes, STRS or PERS. • These Add-ons impact OASDI/Medicare and STRS/PERS Subject Grosses. • If these Add-ons need to be added, please contact your SCOE IT Analyst, and they

will be able to add these Add-ons for you. Refund to Employees You will need to pay any refund amounts to employees by the December Regular Payroll by using the appropriate add-on, or the Z add-ons created for your district.

• Amounts entered for these add-ons would be negative amounts, because you are reducing the subject grosses and refunding the employee.

• This will produce a paycheck to the employee for the amount due. Collecting Repay from Employees Use the following two steps to reflect the refund on the December Regular Payroll:

• Create a Repay Deduction for Net Pay, as a positive amount. • Refund the money due on the next available pay cycle, by using the REPAY

Deduction again for the amount, but as a negative amount. • Create and Employee Snapshot to view any corrections to ensure that they reflect

the changes correctly. • Errors will clear once Payroll processes.

Please remember to collect and clear the Repay during the new year. Erroneous errors may require Z-OASDI/Z-MEDI add-ons to make your reflect correct pay for the W2 reporting calendar.

• The No-Gross add-on is typically required in conjunction with “Z” add-ons. Remember you cannot collect from employees if they are not receiving earnings. So In order to collect you need to complete the following two additional steps:

• Create a RePay Deduction/Contribution for the Net Pay, as a negative amount to bring the net pay to zero. (Contact Helpdesk@SCOE.org to set-up the deduction.)

• Collect the money due from the employee on the next available pay cycle in which the employee is receiving earnings. You would need to use a Repay Deduction for the amount, as a positive amount.

By completing these two steps it zeros out the negative pay, and allows you to collect the money on the next available pay cycle. Keep in mind W2’s will not print if they have errors. Deceased Employees It is necessary for District’s to use the correct process for paying and reporting compensation for a deceased employee. Those guidelines can be found in the IRS Publication 15, and the Instructions for Form W-2. For further information on Deceased Employee reporting please refer to Addendum A.

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Addendum A - Deceased Employees: Final Pay in Escape 1. HR should end the assignment as of the date of death. Make sure the employee has

enough sick leave to be in paid status, or else Payroll should enter the dock. 2. After entering the final sick leave taken, vacation paid out, etc., Payroll should adjust

all leave balances to zero. 3. Determine whether any class size overages or full inclusion or other stipends are

owed. 4. Work with HR to figure out the appropriate end dates for health benefits, dues and

other deductions. Normally everything ends as of the last day of the month during which the employee died.

5. Change the number of federal and state tax exemptions to “99” so no income taxes will be withheld.

6. Look at benefit inflation for employees who aren’t paid monthly. We should refund the additional amount taken from October to the date of death that would have covered their portion of the July and August premiums.

7. Calculate pay in Escape on the next (final) regular payroll, triggering a DNP payout if applicable.

8. Enter a REPAY to reduce the net pay to zero. 9. When the regular payroll runs, the subject grosses will be correct for retirement and

W-2 reporting. 10. Set up a new vendor in accounts payable, “The Estate of (employee)”, with the

employee’s SSN as the TIN and the 1099 Flag set to yes. (If the family contacts us, we can change it to the TIN of the estate, but this would be unusual. They should complete a W-9 in this case.)

11. Accounts Payable should create a direct pay req to issue a warrant to the new “Estate” vendor coded to obj. 9213 to clear the REPAY that will be created in payroll. This warrant should be issued no later than the date of the next payroll. Using a req will document the appropriate approvals.

12. Send a letter with the warrant explaining the pay and that they will get both a W-2 and a 1099. Attach a copy of the letter electronically to both the employee record and the payment record so it will be accessible in case of future questions. For better service to the survivors, resend a copy of the letter with the W-2. Normally SCOE mails the 1099s.

13. The following January, we will issue a Form 1099-MISC to the estate. The pay should be reported in Box 3 according to the 2010 Form 1099 Instructions. [The 1x and 2x objects in payroll have all been changed to default to this box since this is the only time we issue APY warrants coded to these accounts; however, if we code the payment to obj. 9213, the payment will have to be a manual entry for 1099s.]

14. If the employee dies in December and will be paid in January, this process must be adjusted. Per the Form 1099 instructions, the pay should not be included on the W-2 and Medicare (and OASDI, if applicable) should not be taken on the payment.

Addendum B

W-2 Adjustments Deductions/Contributions: HEALTH INSURANCE When both the deduction and contribution used for health insurance are correctly set up for reporting on the W2, Box 12, Category DD, whether using benefit providers or only as deductions and contributions, these will report correctly on the W2. This requirement is for those (employees and/or retirees) who have earnings in 2014 and are therefore receiving a W2. It is for reporting medical benefits only for what both the EMPLOYEE and EMPLOYER combined have contributed. Sometimes an employee does NOT have enough earnings to cover their portion of the benefit through payroll and gets invoiced outside of payroll for these amounts. The correct set up for this is to use the REPAY Deduction in payroll. The repay would be a negative amount thus giving the employee the amount to cover the benefit, and if set up for pre tax benefits the employee will also get the tax break (be cautious, sometimes the tax break can be greater than the employee’s earnings and creates negative subject grosses which is not allowed) and creates the receivable in 9213. This correctly reflects the employee’s portion of benefits in pay records. You would still invoice the employee, but when you receive the money, you will deposit it into 9213. This allows for all of the employer and employee medical contributions to report on the W2 Box 12, Category DD. If you have not been using the REPAY deduction to account for this, you will need to determine the dollar amount you have received from the employee outside of payroll for medical benefits. There is not currently a report to run that would list out all the amounts received from the customer (employee). You can go to Finance-AR-Invoices and search by Customer ID. This will give you a list of invoices. You can snap shot each individual invoice to determine the amounts invoiced and received for Medical benefits. A specific add-on for adding the dollar amount to the W2 Box needs to be created. Please email helpdesk@scoe.org to request the creation of a Medical W2 Adjustment add-on. In other instances, retirees might be paying their portion of medical benefits directly to the district’s health care provider (i.e. RESIG, CVT). Please contact the appropriate health care provider for the amount the retiree has paid outside of payroll in order to report on the W2 being submitted to the retiree by your district (see Resig’s spreadsheet attached). A specific add-on for adding the dollar amount to the W2 Box needs to be created. Please email helpdesk@scoe.org to request the creation of a Medical W2 Adjustment add-on. HEALTH SAVINGS ACCOUNTS (HSA) For districts offering HSA’s, verify that the appropriate contribution/deduction was used to report both employee and employer contributions. This should include the employer contributions and what the employee has elected to pay via the Section 125/Flex Plan. These are reported in W2 box 12 with category code W (HSA contribution). NOTE: If an employee is age 65+ and receiving Medicare they are no longer eligible to contribute funds to the an HSA (Health Savings Account). Please refer to the attached documentation on how to refund and fix their payroll detail.

DEPENDENT CHILD CARE Use this deduction to report the amount paid by the employee for dependent care. It is highly unusual for an employee to exceed the IRS limits ($5,000 for 2014), but it is possible. The district typically receives this information from a Section 125 Plan administrator. If you offer this type of benefit, let your plan administrator know your deadline for entering adjustments. You can also run the Pay12 Employee Deduction Report to verify the 125 Dependent Child Care does not exceed IRS limits. If an employee exceeds the IRS limit, the excess amount needs to be added to boxes 1(wages), 3(OASDI) and 5(M/C) of the employee’s W2. EMPLOYER PAID TSA 403B AND 457B CONTRIBUTIONS Contributions the employer has paid toward a TSA for an employee. These amounts are used for the calculation of the TSA limit. Employer contributions to a section 403(b) for public school employees are exempt from social security and Medicare taxes. IMPORTANT NOTE: All items that require Deduction and Contribution Adjustments must be made on the DECEMBER REGULAR PAYROLL. The W2 CORRECTION PAYROLL should only be used for items that DO NOT REQUIRE CASH ADJUSTMENTS.

Addendum C Add-ons: DOMESTIC PARTNER Add-ons: Domestic/Domregis Use these add-ons to report amounts paid by the employer for health and welfare premiums for domestic partners. Refer to attached documentation regarding Benefits Provided to Domestic Partners as Taxable Income which also addresses Fair Market Value if Composite Rate. Verify if the domestic partnership is registered with the State to determine which add-on to use. -If you used this add-on throughout the tax year 2014 no added adjustment will be needed. -Please let your IT analyst know that you have need of these add-ons and they will be added for you to use in 2014 -If the add-on was not used and should have been, a one-time adjustment using the add-on needs to be made increasing the subject gross wages for FIT, OASDI, M/C and SIT if not registered and no SIT if registered. This must be done on the December Regular Payroll. TERM LIFE INSURANCE Add-on: Lifeadj -No additional adjustment will be needed for this tax year if this add-on was used during the year.. -Please let your IT analyst know that you have need of these add-ons and they will be added for you to use in 2015. If add-on was not used, the district will need to do a one-time manual calculation to correct: Use the Lifeadj add-on that points to the EE-Life earnings table, to report the premium of group employer paid term life insurance in excess of $50,000. For determining the adjustment to income for term life insurance over $50,000, the IRS requires the use of the following table. It sets out the cost per $1,000 of group-term life insurance for one month, computed based on four-year age brackets. For purposes of the table, the age of the employee is his/her attained age on the last day of his/her taxable year. Cost Per $1,000 of Protection for One-month Period: Under age 25 $.05 25 through 29 .06 50 through 54 $.23 30 through 34 .08 55 through 59 .43 35 through 39 .09 60 through 64 .66 40 through 44 .10 65 through 69 1.27 45 through 49 .15 70 and above 2.06 For example, if a district pays the premium on a $70,000 group term life insurance policy for a 50-year-old employee, the cost of the policy to be reported on the employee’s Form W-2 is calculated as follows: Total insurance coverage $70,000 Less amount excluded from taxation 50,000 Excess subject to compensation 20,000 -Tax year 2014 -Add-on Lifeadj = 20 units X .23 X 12 months = $55.20 -- The amount reported on Form W-2 is $55.20. -Tax year 2014 = Month units over X age rate = Monthly deduction

. WORKER COMP CHECKS Add on: Worker Comp All Worker Comp checks for 2014 need to be reflected in the employee’s pay in 2014. This add-on reduces the subject grosses for OASDI, Medicare, FIT and SIT. This needs to be corrected on the December Regular payroll, because this reduces subject grosses and therefore reduces the amount that should be withheld. FRINGE BENEFITS OR MISCELLANEOUS INCOME OUTSIDE OF PAYROLL Any unaccountable expense reimbursement(s) or miscellaneous income received by an employee that is not reflected in the employee’s pay history. Determine the Social Security and Medicare subjectivity and enter accordingly using z-add-ons. Some examples are:

• Additional income paid by an accounts payable commercial warrant • Mileage reimbursement rate only if it is greater than the government specified

reimbursement rate. The government rate for 2014 is .555 cents per mile. Need to use a mileage add-on to report the amount over the government allowable reimbursement rate.

Example: Total number of miles: 250 Rate Per Mile: $.60 (250 X $.60 = $150.00) $138.75 Mileage reimbursement equal to Govt. rate, do not report. $11.25 Mileage reimbursement greater than Govt. rate, reportable income, requires

adjustment to subject grosses (including FIT and SIT) and must report in W2 Box 12, Category L.

THIRD PARTY SICK PAY If you have employees with third-party sick pay, you need to add the employee to an adjustment pay cycle and adjust the tax grosses accordingly. What tax grosses need to be adjusted depends on the provider and the employee’s setup. This reflects taxable payments to employees for sick pay from an insurance company or any other third-party payer. These wages are not reflected in the employee's pay detail. The taxable amount is determined by the percentage of the premium the employer pays and Box13 on the W2 needs to be marked yes for 3rd party sick pay. RETIREMENT INCENTIVE PAY When a choice of payment options is given for retirement payouts, and one of the options is a lump sum, Constructive Receipt Doctrine applies (see attached Nonqualified Deferred Compensation Audit Techniques Guide). When a retiree choses an option other than the lump sum payment option (i.e. monthly payments, benefits in-lieu of payments), special adjustments will need to be made to the W2 the first year reflecting they received the entire amount. The process for this would involve a review of the contract to determine what the true lump sum value is. If benefits are involved, a W2 box 12, Category DD reporting would be required. Succeeding monthly payments would not be taxable. If you offer a choice of payment options for retirement incentive, contact Erin Graves for determining what you need to report and/or not report.

W-2 Adjustment Examples Example #1 – OUT OF RANGE ERRORS – Box #12 Code DD contains a negative amt Example #2 – EMPLOYEE PROBLEMS – Address Example #3 - OUT OF RANGE ERRORS – FIT or SIT gross is negative Example #4 - CALCULATION ERRORS – OASDI gross is greater than Medicare gross

HOW TO REVIEW W2 PROBLEMS/ERRORS

EXAMPLE #1 – OUT OF RANGE ERRORS - Box #12 Code DD contains a negative amount

Step 1 - Go to HR/Payroll-Processes-Tax Reporting-Employee W2

Step 2 - Hit Go a. Review Section 3 – Box 12 (Special Category

- Notice the Negative -1828.80 b. Review Section 8 – Add/Update Info Problem Msg

- Explains the Problem

Step 3 - Go to HR/Payroll-Reports-Payroll

a. Run the PAY34 report - Starting Pay Date: 1/1/14 - Ending Pay Date: 12/31/14 - Employee ID: 5628

This will help you identify which payroll created the error

Step 4 a. Go to HR/Payroll-Payroll-Adjust Payroll b. Go to the payroll that caused the negative amount. Determine which Deduction/Contribution

was used.

Step 5 a. Go HR/Payroll-Payroll-Adjust Payroll for the 12/30/14 Regular Payroll b. Use the same deduction/contribution to reverse the negative amount reported on the W2

Step 6

a. Create a new deduction/contribution copying the same deduction/contribution code. b. Rename the copied deduction/contribution: HW W2Adj. This will be unique and easy to

identify. c. Go to Section 2 and remove the W2 information. So that the new deduction/contribution

information will not print in Box 12 on the W2 Form.

Remember to review these adjustments/corrections once the December Regular Payroll has been run.

EXAMPLE #2 – EMPLOYEE PROBLEMS:

Upon review of the Pay31 – W2 Error report The address is undeliverable, the district will need to fix the address on the W2. It should be: 570 Rohnert Park Expy (21 characters) Address Line 1 Apt. #340 Address Line 2 IRS only allows up to 22 characters for the first line of the street address. ESCAPE allows up to 60 characters across two lines. When running the W2’s ESCAPE truncates the second address line.

EXAMPLE #3 - OUT OF RANGE ERRORS – FIT or SIT gross is negative

Step 1. Determine why the FIT and SIT grosses are negative Step 2. Go to HR/Payroll-Processes-Tax Reporting-Employee W2

-FIT and SIT gross is negative - You can adjust FIT and SIT grosses using Z-SIT and Z-FIT addons. Since FIT and SIT are not percentage based (they are based on tax tables), you will need to adjust FIT and SIT deduction amounts.

STEP 3. - Go to HR/Payroll-Adjust Payroll (DECEMBER REGULAR PAYROLL) 1. Enter the Z-FIT Addon as a positive 2. Enter the S-Fit Addon as a positive

EXAMPLE #4 – CALCULATION ERRRS – OADSI gross is greater than Medicare gross.

-OADSI gross is greater than Medicare gross. - Either the OASDI gross needs to be reduced or Medicare gross needs to be adjusted. You can make adjustments to subject grosses by using Z-OASDI or Z-MEDI addons. DECEMBER REGULAR PAYROLL

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Dec. 14 Dec. 15 Dec. 17 Dec 23 Jan. 13 Jan. 14 Jan. 22-28 Jan. 31

W2 Form’s Due to

Employees

Delivery or Mail

Load W2

Payroll Detail

SCOE IT – W2 Timeline W2 SCOE IT

Timeline • December 14

Load 14.3 Version of Escape into Production. System will be down all day.

• December 15 Load W2 into Payroll Detail (Production & Training)

• December 17 & 23 LoadW2 Payroll Detail (Production & Training)

• January 13 W2 Correction Payroll (Dated 12/25/14)

• January 14 Load W2 Correction Payroll (Production & Training)

• January 22 - 28 Print and Fold W2 Forms

• January 28 - Afternoon Printed W2 Form’s available to the District’s.

Load 14.3 Version of Escape into Production.

ESCAPE System down

all day.

Load W2 Payroll Detail

including Supplemental Payroll Detail

W2 Correction

Payroll

FINAL Load

Payroll Detail

Load Payroll Detail

including December Regular

W2 Printing

and Folding

Dec. 15 Dec. 15-19 Dec. 20-Jan 12 Jan. 12 Jan. 14 Jan 14 Jan. 31

W2 Verification

Reports Due

to SCOE by 4:30 p.m.

District - W2 Timeline District W2 Processing Timeline • December 15 - 19

Verification of Payroll Data • ALL Pay Related Corrections made in

Production during December Regular Payroll

Name, Address, SS Domestic Partner FICA/OASDI S125/TSA’s Life Insurance over 50K

• December 19 – Regular Payroll by 12:00 noon

All Cash/Pay Adjustments

• December 20- January 12 Verification of Payroll Data

• January 12 by 12:00 noon

W2 Correction Payroll Subject Gross Adjustments ONLY – No Cash Entries

• January 14

FINAL Verification of Payroll W2 Detail

• January 14 by 4:30 p.m. W2 Verification Reports Due to SCOE

• January 28 (12;00 noon) W2 Forms available for pickup at SCOE

• January 31 W2 Form’s Due to Employees

Verification of Payroll

Data Production

Version 14.3

FINAL Verification

of Payroll Data

Verification of Payroll

Data Production

Version 14.3

W2 Form’s Due to

Employees

Delivery or Mail

All Pay Related Corrections Made during

December Regular Payroll 12/19/14

W2 Correction

Payroll Dated: 12/25/14

Due to SCOE

12/12/14 11:36 mw