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1040x site efile com Publication 957 - Main Content Table of Contents 1. 1040x site efile com What is Back Pay?Reporting Back Pay Back Pay Under a Statute Nonstatutory Back Pay Format for Report to the SSA Questions 2. 1040x site efile com 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). 1040x site efile com 1. 1040x site efile com 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). 1040x site efile com 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. 1040x site efile com Damages for personal injury, interest, penalties, and legal fees included with back pay awards are not wages. 1040x site efile com Report all back pay. 1040x site efile com 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. 1040x site efile com See Back Pay Under a Statute , later, for more information. 1040x site efile com Reporting Back Pay The Internal Revenue Service (IRS) and the SSA consider back pay awards to be wages. 1040x site efile com However, for income tax purposes, the IRS treats all back pay as wages in the year paid. 1040x site efile com 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. 1040x site efile com The SSA no longer accepts reports on tapes, cartridges, and diskettes. 1040x site efile com Example. 1040x site efile com In 2012, Terry Morris earned wages of $50,000. 1040x site efile com 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. 1040x site efile com Her employer properly reflected social security wages of $110,100 and Medicare wages of $150,000 on her 2012 Form W-2. 1040x site efile com 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. 1040x site efile com Example. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com SSA treatment of back pay under a statute. 1040x site efile com   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. 1040x site efile com 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. 1040x site efile com   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. 1040x site efile com Then, the SSA can allocate the statutory back pay to the appropriate periods. 1040x site efile com   If a back pay award is not made under a statute, the SSA credits back pay as wages in the year paid. 1040x site efile com    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. 1040x site efile com    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. 1040x site efile com No further action is necessary. 1040x site efile com Example. 1040x site efile com 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. 1040x site efile com Her employer properly reported wages of $32,000 for social security and Medicare on her 2012 Form W-2. 1040x site efile com No further action is necessary. 1040x site efile com Information the SSA needs to properly credit back pay under a statute (special report). 1040x site efile com   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. 1040x site efile com There is no statute of limitations on the filing of the special report to enable the SSA to allocate the wages. 1040x site efile com The special report must include the following information. 1040x site efile com The employer's name, address, and employer identification number (EIN). 1040x site efile com A signed statement citing the federal or state statute under which the payment was made. 1040x site efile com 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). 1040x site efile com The name and telephone number of a person to contact. 1040x site efile com The SSA may have additional questions concerning the back pay case or the individual employee's information. 1040x site efile com A list of employees receiving the payment and the following information for each employee: The tax year you paid and reported the back pay. 1040x site efile com The employee's social security number (SSN). 1040x site efile com The employee's name (as shown on his or her social security card). 1040x site efile com The amount of the back pay award excluding any amounts specifically designated otherwise, for example, damages for personal injury, interest, penalties, and legal fees. 1040x site efile com The period(s) the back pay award covers (beginning and ending dates—month and year). 1040x site efile com 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)*. 1040x site efile com Do not include the back pay award shown in that wage report. 1040x site efile com 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. 1040x site efile com The amount to allocate to each reporting period*. 1040x site efile com This includes any amount you want allocated (if applicable) to the tax year of the award payment. 1040x site efile com 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. 1040x site efile com *Note. 1040x site efile com   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. 1040x site efile com For all tax years, show and identify the social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) separately. 1040x site efile com MQGE is applicable to federal employees beginning in 1983, and for certain state and local government employees beginning in 1986. 1040x site efile com For tax years 1991 and later, list the social security and Medicare wages separately. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com Payments based on laws that have a similar effect to those listed above also may qualify as payments made under a statute. 1040x site efile com Back pay awards, under some of the statutes listed above, may be compensation for personal injury and not pay for employment. 1040x site efile com Such awards are not wages for social security coverage purposes. 1040x site efile com 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. 1040x site efile com The payments made in such a settlement may still be back pay and wages under the rules discussed here. 1040x site efile com 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. 1040x site efile com Delayed wage payments and retroactive pay increases resulting from union negotiation or payments under local ordinances or regulations are back pay and are wages. 1040x site efile com However, they are not payments made under a statute. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com Under certain circumstances, back pay may be a special wage payment and excluded from wages counted under the social security earnings test. 1040x site efile com If you pay back pay to an employee age 61 or older, report it to the SSA in accordance with this section. 1040x site efile com Read Special Wage Payments, later, for additional reporting instructions. 1040x site efile com Questions If you have questions concerning back pay under a statute, call the SSA at 1-800-772-6270. 1040x site efile com Exception. 1040x site efile com   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. 1040x site efile com Table 1. 1040x site efile com 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. 1040x site efile com Sec. 1040x site efile com /Med. 1040x site efile com Wages Paid In Award Year (4)3 Allocation     Soc. 1040x site efile com Sec. 1040x site efile com Med. 1040x site efile com /MQGE Year Soc. 1040x site efile com Sec. 1040x site efile com Med. 1040x site efile com /MQGE xxx-xx-xxxx HELEN T. 1040x site efile com 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. 1040x site efile com EVANS 30,000 7/89-12/91 -0- -0- 1989 1990 1991   6,000 12,000 12,000 xxx-xx-xxxx ROLAND S. 1040x site efile com 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. 1040x site efile com  2Exclude the amount of back pay, if any, included in that amount. 1040x site efile com  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. 1040x site efile com The social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) must be shown separately FOR ALL YEARS. 1040x site efile com (Wages subject ONLY to MQGE would be shown in the Medicare/MQGE column; no wages would be shown in the Soc. 1040x site efile com Sec. 1040x site efile com column. 1040x site efile com ) For tax years 1991 and later, the social security and Medicare wages must be listed separately. 1040x site efile com Explanation of examples. 1040x site efile com Helen T. 1040x site efile com Smith–The back pay award, excluding interest, was $100,000 for the periods 1/2009-12/2012. 1040x site efile com In 2012, this employee was also paid $40,000 in other wages. 1040x site efile com (Her Form W-2 for 2012 reported $110,100 for social security and $140,000 for Medicare. 1040x site efile com The SSA allocation will result in adjusted posted wages of $68,000 for social security and $68,000 for Medicare for 2012. 1040x site efile com ) Sam W. 1040x site efile com Evans–The back pay award was $30,000 for the periods 7/89-12/91. 1040x site efile com This employee was hired in 1989 and was subject to MQGE only. 1040x site efile com He was no longer employed by this governmental employer in 2012. 1040x site efile com (His Form W-2 for 2012 reported $30,000 for social security and $30,000 for Medicare. 1040x site efile com After the SSA allocation, he will not have any net posted wages for 2012. 1040x site efile com ) Roland S. 1040x site efile com Adams–The back pay award was $15,000 for the periods 7/80-12/81. 1040x site efile com He was no longer employed by this state and local government (Section 218) employer in 2012. 1040x site efile com (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. 1040x site efile com ) 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. 1040x site efile com 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. 1040x site efile com Employers should report to the SSA special wage payments made to employees and former employees who are recipients of social security retirement benefits. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com Note. 1040x site efile com Payments made after retirement that are part of the normal payroll cycle should not be routinely reported as special wage payments. 1040x site efile com Earnings Test. 1040x site efile com   Benefits paid to a social security beneficiary under full retirement age may be reduced if the beneficiary continues to work. 1040x site efile com The SSA uses the information in boxes 1, 3, and 5 of Form W-2 to determine the beneficiary's current year earnings. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com Therefore, employer reports of special wage payments help prevent incorrect benefit reductions. 1040x site efile com Reporting Special Wage Payments Employers must report special wage payments for income tax purposes and social security and Medicare taxes in the year received. 1040x site efile com Report income, social security, and/or Medicare taxes for special wage payments on Form W-2. 1040x site efile com See Nonqualified Deferred Compensation and Section 457 Plans, later, for reporting nonqualified deferred compensation plan deferrals and payments on Form W-2. 1040x site efile com 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. 1040x site efile com Submit reports after the close of the tax year. 1040x site efile com To avoid delays in processing, submit reports in time to reach the SSA by April 1. 1040x site efile com Use one of the following reporting methods. 1040x site efile com Electronic reporting. 1040x site efile com   Special wage payment files can be sent electronically by logging onto Business Services Online (BSO) via the socialsecurity. 1040x site efile com gov website. 1040x site efile com BSO enables organizations and authorized individuals to conduct business with and submit confidential information to the Social Security Administration. 1040x site efile com You must register to use this website. 1040x site efile com The web address is www. 1040x site efile com socialsecurity. 1040x site efile com gov/bso/bsowelcome. 1040x site efile com htm. 1040x site efile com   Use the specifications and record layout shown in  Table 2, later. 1040x site efile com Only one file at a time may be submitted. 1040x site efile com If your file is large (>10MB), or you have a slow internet connection, the transmission will be faster if the file is zipped. 1040x site efile com A zipped file contains a file that has been compressed to reduce its file size. 1040x site efile com WinZip and PKZIP are examples of acceptable compression packages. 1040x site efile com   Electronic submissions not meeting the specifications in Table 2 will be rejected. 1040x site efile com Paper listing. 1040x site efile com   A paper listing can be used to report special wage payments to several employees. 1040x site efile com Use the format shown in Table 3, later. 1040x site efile com Submit paper listings to the local SSA office nearest your place of business. 1040x site efile com Visit www. 1040x site efile com socialsecurity. 1040x site efile com gov/locator to find a Social Security office near you. 1040x site efile com Form SSA-131. 1040x site efile com   Use Form SSA-131 to report special wage payments made to an employee. 1040x site efile com 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. 1040x site efile com    This image is too large to be displayed in the current screen. 1040x site efile com Please click the link to view the image. 1040x site efile com Publication 957 Reporting Back Pay to the Social Security Administration Instructions for Form SSA–131   EMPLOYER INSTRUCTIONS FOR COMPLETING SPECIAL WAGE PAYMENT FORM 1. 1040x site efile com Provide the EIN that was used or will be used to report the employee's wages on the Form W-2. 1040x site efile com 2. 1040x site efile com Enter the date the employee retired. 1040x site efile com Enter “Not Retired” if the employee has not retired. 1040x site efile com 3. 1040x site efile com 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. 1040x site efile com This date should be the same as or earlier than the date in item “2”. 1040x site efile com Enter “Not Retired” if the employee has not retired. 1040x site efile com 4. 1040x site efile com 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. 1040x site efile com  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. 1040x site efile com Accumulated sick payments which were paid in a lump sum based on “retirement” as the sole condition of payment. 1040x site efile com Accumulated sick payments paid at or after the date in item 3, which were earned in a year prior to the tax year. 1040x site efile com Payments “on account of retirement”–dismissal, severance or termination pay paid because of retirement. 1040x site efile com 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. 1040x site efile com Stock Options. 1040x site efile com   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”). 1040x site efile com That were reported or will be reported under “Nonqualified Plans” on the Form W-2. 1040x site efile com That were deducted from the employee's wages and paid to a deferred compensation plan (e. 1040x site efile com g. 1040x site efile com , 401k). 1040x site efile com Employees health and dental plan benefits (non-covered/non-taxable for Social Security Wages). 1040x site efile com Bonuses earned and paid in the tax year. 1040x site efile com 5. 1040x site efile com Check whether payments listed in item 4 will be made for years after the tax year. 1040x site efile com If yes, please show the amounts and years in which these will be paid, if known. 1040x site efile com 6. 1040x site efile com Nonqualified deferred compensation and section 457 plans only. 1040x site efile com 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. 1040x site efile com 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). 1040x site efile com Paperwork/Privacy Act Notice: This report is authorized by regulation 20 CFR 404. 1040x site efile com 702. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com We may also use the information you give us when we match records by computer. 1040x site efile com Matching programs compare our records with those of other Federal, State, or local government agencies. 1040x site efile com Many agencies may use matching programs to find or prove that a person qualifies for benefits paid by the Federal Government. 1040x site efile com The law allows us to do this even if you do not agree to it. 1040x site efile com Explanations about these and other reasons why information you provide us may be used or given out are available in Social Security Offices. 1040x site efile com If you want to learn more about this, contact any Social Security Office. 1040x site efile com The Paperwork Reduction Act: This information collection meets the clearance requirements of 44 U. 1040x site efile com S. 1040x site efile com C. 1040x site efile com §3507, as amended by Section 2 of the Paperwork Reduction Act of 1995. 1040x site efile com You are not required to answer these questions unless we display a valid Office of Management and Budget control number. 1040x site efile com We estimate that it will take you about 20 minutes to read the instructions, gather the necessary facts, and answer the questions. 1040x site efile com Form SSA-131 (8-2001) EF (06-2002)   Submit Form SSA-131 to the SSA office nearest your place of business. 1040x site efile com Or, the employee can submit it to the SSA office handling the claim. 1040x site efile com You or the employee must submit this form before the SSA can exclude the special wage payments for purposes of the earnings test. 1040x site efile com 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. 1040x site efile com Do not report payments from nonqualified deferred compensation or section 457 plans that were reported in box 11 of Form W-2. 1040x site efile com Use Form SSA-131 if deferrals to and payments from nonqualified or section 457 plans occurred during the tax year. 1040x site efile com 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. 1040x site efile com It should not count for the social security earnings test. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com Nonqualified and section 457 plans are reported differently than other special wage payments. 1040x site efile com See Reporting Amounts Deferred to Nonqualified and Section 457 Plans below for specific instructions. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com The plans' deferrals, or contributions, are not subject to social security and Medicare taxes until the period of substantial risk of forfeiture ends. 1040x site efile com No risk of forfeiture. 1040x site efile com   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. 1040x site efile com Example. 1040x site efile com Company X's nonqualified deferred compensation plan allows the deferral of up to $20,000 of employee salaries each year. 1040x site efile com The plan has no risk of forfeiture. 1040x site efile com In 2012, Employee A defers $20,000 to the plan from a total salary of $200,000. 1040x site efile com 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. 1040x site efile com   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. 1040x site efile com The accumulated deferrals are reported along with any other social security and Medicare wages earned during the year. 1040x site efile com   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. 1040x site efile com If the employee continues working, future deferrals are social security and Medicare wages when they are earned. 1040x site efile com    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. 1040x site efile com Risk of forfeiture lapses at retirement. 1040x site efile com   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. 1040x site efile com 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. 1040x site efile com   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. 1040x site efile com    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. 1040x site efile com Example—risk of forfeiture. 1040x site efile com 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. 1040x site efile com B's wages, including this year's deferred amount, are $80,000. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com Example. 1040x site efile com Employee D retired from the XYZ company and began receiving social security benefits. 1040x site efile com 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. 1040x site efile com In addition, D agreed to continue performing services for XYZ, but on a part-time basis for wages of $15,000 per year. 1040x site efile com D made no deferrals to the nonqualified plan this year. 1040x site efile com 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. 1040x site efile com For more information, see Reporting Special Wage Payments , earlier. 1040x site efile com 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). 1040x site efile com Report to the SSA on Form SSA-131 the total amount the employee earned during the tax year. 1040x site efile com 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. 1040x site efile com See Form SSA-131 and its instructions, earlier. 1040x site efile com Example. 1040x site efile com Employee K retired this year from Company XYZ and began receiving social security benefits. 1040x site efile com During the year he earned wages of $50,000 and deferred $35,000 of the wages into the company's nonqualified deferred compensation plan. 1040x site efile com K also received $75,000 in payments from the company's nonqualified plan. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com If you report section 409A deferrals, show the amount in box 12 of Form W-2 using code Y. 1040x site efile com For more information, see Notice 2008-115, 2008-52 I. 1040x site efile com R. 1040x site efile com B. 1040x site efile com 1367, available at www. 1040x site efile com irs. 1040x site efile com gov/irb/2008-52_IRB/ar10. 1040x site efile com html. 1040x site efile com Special reporting rules apply when an NQDC plan is not compliant with section 409A (when there has been a “plan failure”). 1040x site efile com Income included under section 409A from an NQDC plan is reported in box 1 and box 12 of Form W-2 using code Z. 1040x site efile com See Notice 2008-115. 1040x site efile com The following examples use small dollar amounts for illustrative purposes. 1040x site efile com 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). 1040x site efile com The term “vested” in the following examples means that the amount deferred is not subject to a substantial risk of forfeiture. 1040x site efile com Conversely, the term “not vested” means that the amount deferred is subject to a substantial risk of forfeiture. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com Example 1: Deferral that is immediately vested (no substantial risk of forfeiture) with no distributions and no vesting of prior-year deferrals. 1040x site efile com For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into her employer’s NQDC plan. 1040x site efile com The deferral of $20 was vested upon deferral and there was an employer match of $10 under the plan, which was also vested. 1040x site efile com Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10. 1040x site efile com 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). 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com Regular pay = $200; Deferral, not vested = $20; Employer match, not vested = $10. 1040x site efile com 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). 1040x site efile com 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. 1040x site efile com The deferral of $20 was vested upon deferral. 1040x site efile com During the year, $100 of prior-year deferrals and $15 of investment earnings on the $100 of prior-year deferrals became vested. 1040x site efile com Regular pay = $200; Deferral, vested = $20; Vesting of prior-year deferrals = $100; Vesting of investment earnings on $100 of prior-year deferral = $15. 1040x site efile com 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). 1040x site efile com For the year, the employee’s regular pay was $100, and the employee deferred no pay into the employer’s NQDC plan. 1040x site efile com There was no vesting of prior-year deferrals under the plan. 1040x site efile com During the year, there were total distributions of $50 from the plan to the employee. 1040x site efile com Regular pay = $100; Distribution = $50. 1040x site efile com 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). 1040x site efile com   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. 1040x site efile com Instead, report on Form SSA-131 the total amount the employee earned during the year. 1040x site efile com * Submit the SSA-131 to the nearest SSA office or give it to the employee. 1040x site efile com   *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. 1040x site efile com Do not consider prior-year deferrals that are vesting in the current year. 1040x site efile com If there was a plan failure, the box 1 amount in this calculation should be as if there were no plan failure. 1040x site efile com Example 5: Deferral that is immediately vested and there are distributions (no vesting of prior-year deferrals). 1040x site efile com For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 1040x site efile com There was also an employer match of $10. 1040x site efile com The deferral and employer match were vested upon deferral. 1040x site efile com There was no vesting of prior-year deferrals under the plan. 1040x site efile com During the year, there were total distributions of $50 from the plan to the employee. 1040x site efile com Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10; Distribution = $50. 1040x site efile com 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. 1040x site efile com 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). 1040x site efile com For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 1040x site efile com The deferral was not vested upon deferral. 1040x site efile com There was no vesting of prior-year deferrals under the plan. 1040x site efile com During the year, there were total distributions of $50 from the plan to the employee. 1040x site efile com Regular pay = $200; Deferral, not vested = $20; Distribution = $50. 1040x site efile com 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). 1040x site efile com 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). 1040x site efile com For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 1040x site efile com The deferral was vested upon deferral. 1040x site efile com There was vesting of $100 of prior-year deferrals and $15 of earnings on the $100 prior-year deferral under the plan. 1040x site efile com During the year, there were total distributions of $50 from the plan to the employee. 1040x site efile com Regular pay = $200; Deferral, vested = $20; Distribution = $50; Vesting of prior-year deferrals ($100) and earnings on those prior-year deferrals ($15) = $115. 1040x site efile com 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. 1040x site efile com 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). 1040x site efile com For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 1040x site efile com The deferral was not vested upon deferral. 1040x site efile com There was also vesting of prior-year deferrals and employer matches and earnings on these amounts under the plan ($115). 1040x site efile com During the year, there were total distributions of $50 from the plan to the employee. 1040x site efile com 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. 1040x site efile com 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. 1040x site efile com File Form SSA-131 -0-     Form SSA-131 Completion Item 6 ($230 Amount from Box 1 of Form W-2 minus $50 Distribution) $180 Table 2. 1040x site efile com Specifications for Electronic Reporting of Special Wage Payments Record Position  Field Size   Description Start End 1 3 3 Record Type—must include only the capital letters “SWP” 4 12 9 SSN—must be numeric and may not be all zeros 13 27 15 Last Name—all capitals and no punctuation; may have blanks on right only 28 38 11 First Name—all capitals and no punctuation; may have blanks on right only 39 39 1 Middle Initial—must be either a capital letter or blank 40 48 9 EIN—must be numeric and may not be all zeros 49 59 11 Payment—must be numeric; may not be all zeros; last two digits on right are assumed to be cents; no period or dollar sign 60 63 4 Payment Year—must be only a four-digit year 64 66 3 SSA Office Code—must be numeric and may be all zeros 67 67 1 Payment Type Code—must be the capital letter “T” 68 117 50 Filler  The record format is a fixed length of 117. 1040x site efile com  The file format is ASCII. 1040x site efile com  Submit only one file at a time. 1040x site efile com   Table 3. 1040x site efile com Sample—Paper Listing for Reporting Special Wage Payments to Several Employees Report of Special Wage PaymentsTax Year: Page of A. 1040x site efile com Employer Name: EIN:   Address: Contact Name:     Phone: ( )   . 1040x site efile com 1) B. 1040x site efile com Employee Name: (Last) (First) (MI)   C. 1040x site efile com SSN: D. 1040x site efile com SWP:$ E. 1040x site efile com Type: Other: 2) B. 1040x site efile com Employee Name: (Last) (First) (MI)   C. 1040x site efile com SSN: D. 1040x site efile com SWP:$ E. 1040x site efile com Type: Other: 3) B. 1040x site efile com Employee Name: (Last) (First) (MI)   C. 1040x site efile com SSN: D. 1040x site efile com SWP:$ E. 1040x site efile com Type: Other: 4) B. 1040x site efile com Employee Name: (Last) (First) (MI)   C. 1040x site efile com SSN: D. 1040x site efile com SWP:$ E. 1040x site efile com Type: Other: 5) B. 1040x site efile com Employee Name: (Last) (First) (MI)   C. 1040x site efile com SSN: D. 1040x site efile com SWP:$ E. 1040x site efile com Type: Other:     INSTRUCTIONS:   Enter tax year and page number. 1040x site efile com   A. 1040x site efile com 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. 1040x site efile com   B. 1040x site efile com Employee's name. 1040x site efile com   C. 1040x site efile com Employee's social security number (SSN). 1040x site efile com   D. 1040x site efile com Total amount of special wage payments made to the employee. 1040x site efile com   E. 1040x site efile com 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. 1040x site efile com   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. 1040x site efile com (Get Form SSA-131. 1040x site efile com )                 Prev  Up  Next   Home   More Online Publications