The second Setting Every Community Up for Retirement Enhancement Act, signed into law on Dec. 29, 2022, created a lot of changes for both workers and companies that offer retirement savings plans.
That’s why the Internal Revenue Service is giving businesses an early reminder of their tax reporting responsibilities under SECURE 2.0, as the law is popularly known. One key area that could be affected is information included on W-2 forms.
SECURE 2.0 allows for additional features in various employer retirement plans to encourage use of these plans. They include —
- De minimis financial incentives (Section 113 of the SECURE 2.0 Act),
- Roth Savings Incentive Match Plan for Employees (SIMPLE) and Roth Simplified Employee Pension (SEP) Individual Retirement Arrangements (IRAs) (Section 601 of the SECURE 2.0 Act), and
- Optional treatment of employer nonelective or matching contributions as Roth contributions (Section 604 of the SECURE 2.0 Act).
The changes potentially affect not only the basic Form W-2, Wage and Tax Statement, but also Forms W-2AS, W-2GU, and W-2VI.
Here’s more on each of the affected reporting areas.
De minimis financial incentives: Among the SECURE 2.0 Act changes designed to encourage employees to contribute to workplace 401(k) or 403(b) plans was allowing employers to offer small financial incentives to employees who choose to participate.
If an employer offers such an incentive, the IRS notes that it is considered part of the employee's income, and is subject to regular tax withholding unless there's a specific exemption.
More information on these incentives is available in Questions and Answers D-1 through D-6 in Notice 2024-2. A tip from me: Enter D-1 in the search box to find this Q&A section more quickly.
Roth SIMPLE and Roth SEP IRAs: SECURE 2.0 also allows, under section 601, an employer that maintains a SEP or SIMPLE IRA plan the option to let participating employees designate a Roth IRA as the IRA to which the plan contributions are made.
Again, more info is in Notice 2024-2, Questions and Answers K-1 through K-8. And again, take advantage of the IRS search tool.
As for reporting specifics, salary reduction contributions to a Roth SEP or Roth SIMPLE IRA are subject to federal income tax withholding, the Federal Insurance Contributions Act (FICA) taxes, and the Federal Unemployment Tax Act (FUTA) taxes.
So these contributions should be included in boxes 1, 3 and 5 (or box 14 for railroad retirement taxes) of Form W-2 (shown below). They’ll also be reported in box 12 with code F (for a SEP) or code S (for a SIMPLE IRA).
Employer matching and nonelective contributions to a Roth SEP or Roth SIMPLE IRA are not subject to withholding for federal income tax, FICA, or FUTA taxes. So these contributions must be reported on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (shown below) for the year in which the contributions are made to the employee’s Roth IRA.
The total amounts are listed in boxes 1 and 2a of Form 1099-R with code 2 or 7 in box 7, and the IRA/SEP/SIMPLE checkbox is checked.
Designated Roth nonelective contributions and designated Roth matching contributions: Under section 604 of the SECURE 2.0 Act, plans can allow employees to designate certain matching and nonelective contributions made after Dec. 29, 2022, as Roth contributions.
These contributions are not subject to withholding for federal income tax. In addition, these contributions generally are not subject to withholding for Social Security or Medicare tax.
However, for designated Roth nonelective contributions, including contributions that would be treated as matching contributions if the plan were a qualified plan, that are made to a governmental section 457(b) plan, refer to Question and Answers L‑7 in Notice 2024‑2.
Unlike regular Roth contributions, designated Roth nonelective and matching contributions must be reported on Form 1099-R for the year in which they're allocated to an individual's account. They’re reported in boxes 1 and 2a of Form 1099-R, and code “G” is used in box 7. More information on this situation is found in Questions and Answers L-1 through L-11 in Notice 2024-2.
Yes, I’m saying it one more time. The search tool is magic.
Form W-2 or Form 1099-R reporting: As noted earlier in this post (and the IRS fact sheet), the reporting requirements that apply to contributions made to a Roth IRA under a SEP arrangement or SIMPLE IRA plan, or to a designated Roth account under an applicable retirement plan, depend on the type of contribution made.
The table below summarizes these reporting requirements.
For more information, refer to the 2024 tax year General Instructions for Forms W-2 and W-3 and the Instructions for Forms 1099-R and 5498.
Fill out forms on IRS.gov: Finally, the IRS reminds businesses that they now can complete and print various copies for recipient workers of Forms W-2 (including Forms W-2AS, W-2GU and W-2VI) on IRS.gov. Any information entered on one copy will automatically appear on the others.
Note, however, that Copy A, which is sent to the Social Security Administration, is not included in the IRS' online completion option.
Also, if your business filed 2023 Forms W-2 without following these new SECURE 2.0 guidelines, you may need to file Form W-2 C to correct any errors. Refer to the General Instructions for Forms W-2 and W-3 for details on when and how to file Form W-2C.
You also might find these items of interest:
- Tax-favored retirement savings get cost-of-living 2024 boost
- IRS touts enhanced tax options for businesses with online accounts
- 9 states join Uncle Sam in taxing at least some Social Security benefits
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