IRS Provides Guidance on Safe Harbor for De Minimis Errors Made on Forms W-2, 1099
Author: Rena Pirsos, XpertHR Legal Editor
January 5, 2017
The IRS has issued Notice 2017-09, which provides for a safe harbor for filers that have made de minimis errors on certain IRS forms.
Specifically, an employer or payer that makes a single mathematical error on a Form W-2 or any form in the 1099 series that is not more than $100, or not more than $25 for errors involving tax withholding or backup withholding, is automatically covered under the safe harbor for de minimis errors on information returns. The safe harbor relieves the filer of a penalty assessment for failing to:
- File a correct information return; or
- Provide the recipient with a correct copy of that return.
The safe harbor applies to information returns required to be filed after December 31, 2016. Although an employer or payer does not need to file corrected forms and provide them to the recipient(s), the IRS stresses that they are nevertheless free to do so.
However, the Notice provides that a recipient of an incorrect form - an employee or independent contractor - may elect out of the safe harbor and request to be provided with a corrected form that is accurate.
The Notice also clarifies that the safe harbor does not apply if an employer or payer makes an intentional error on a Form W-2 or 1099, even if the error falls within the range of de minimis amounts. In addition, the safe harbor does not apply if an employer or payer fails to provide a form to a recipient or file it with the Social Security Administration (SSA) or the IRS.
Procedure for Recipients
Under the Notice, a recipient may elect out of the safe harbor by complying with the employer's or payer's reasonable procedure for making such elections. The Notice indicates that a reasonable procedure may require a recipient to provide the election in writing, online or by telephone, but that an online election cannot be the only choice. No other prerequisite, condition or time limit may be imposed for making an election.
Employers or payers must notify recipients of their reasonable procedure. An employer or payer that fails to designate a reasonable procedure must accept a recipient's written election that is sent to the address on the information return.
A recipient may make an election that applies only to the current year's form (e.g., a recipient making an election on June 15, 2017, may make an election with respect to forms required to be furnished in calendar year 2017), or that applies to the current year and to subsequent years.
A recipient must clearly state his or her intention to make an election. In addition, the election request must include the following information:
- The recipient's name, address and Taxpayer Identification Number;
- The type of information return to which the election applies (i.e., Form W-2 or 1099-MISC); and
- The duration of the election (i.e., whether it applies to the current year or indefinitely).
If a recipient does not identify the type of information return or the calendar year to which the election relates, the employer or payer must treat the election as applying to all information returns the recipient must receive in the current year and in any succeeding year.
A recipient may revoke his or her election at any time by providing the employer or payer with written notification. The recipient may specify the form to which the revocation applies.
The employer or payer must retain the recipient's election for as long as necessary, which should be at least as long as the employer or payer retains the related information returns.
An employer or payer that furnishes a corrected form to a recipient and files it with the SSA or IRS within 30 days of the date of the election will be treated as having established reasonable cause for the error and will not be subject to tax penalties.
Proposed Regulations, Comments
The Notice also states the IRS's intention to issue related regulations. The IRS invites public comments on:
- The rules contained in the notice;
- Potential abuses of the de minimis safe harbor; and
- Any information returns or payee statements that should be excluded from the safe harbor.
Comments should be submitted to the IRS by April 24, 2017. They may be submitted electronically to Notice.Comments@irscounsel.treas.gov with "Notice 2017-09" included in the subject line. Comments will be available for public inspection.