Combined Annual Wage Reporting Missing Form W-2 Inquiries
Verifying the Information
The Social Security Administration (SSA) and Internal Revenue Service (IRS) have an agreement to exchange employment tax data. SSA shares Form W-2 data with the IRS and the IRS shares Form 941, 943, 944, 945 (henceforth called Form 94X) and Schedule H data with SSA.
The Combined Annual Wage Reporting (CAWR) is a document matching program that compares the Federal Income Tax (FIT) withheld, advance Earned Income Credit (AEIC), Medicare wages, Social Security wages, and Social Security Tips reported to the IRS on the Forms 94X and Schedule H against the amounts reported to SSA via Forms W-3 and the processed totals of the Forms W-2.
When the Social Security and/or Medicare Wages reported to SSA on Forms W-2 are lower than the Social Security and/or Medicare Wages reported to IRS on Forms 94X/Schedule H, SSA contacts the employer, issuing Notice SSA-L-93-SM, Employer Questionnaire Discrepancy Between IRS and SSA Records, requesting information to help resolve the discrepancy. If the initial contact does not fully resolve the discrepancy, SSA follows up with Notice SSA-L-94-SM, Second Request Questionnaire SSA Has No Record of Employer Record. If, after two contacts, the imbalance is not completely resolved, SSA refers the case(s) to the IRS.
The inventory received from SSA into the CAWR program (known as SSA-CAWR cases) is reviewed by tax examiners who attempt to reconcile the discrepancy without contact with the employer. This includes additional research with SSA to determine if Forms W-2 were filed/corrected in the interim. The tax examiner review begins in April each year for the third preceding tax year (for example: during 2012 IRS is analyzing tax year 2009 SSA-CAWR cases).
If, after the initial case analysis, a discrepancy remains, the tax examiner issues Letter 98C Wage Discrepancy Per SSA: Information /Verification Requested. The 98C Letter informs the taxpayer of a discrepancy between information reported on the employment tax returns (i.e.: the Forms 94X or Schedule H) and that reported on Forms W-2.
The IRS must receive your response within 45 days of the date of the 98C Letter. If a response is not received within this timeframe the case will be closed, and the employer will be subject to the penalties outlined in the notice.
How To Prepare Your Response:
- If you use the services of an accountant or payroll service provider they will receive a copy from the IRS.
- Review your employment tax information and compare it to the issues raised on the CAWR letter.
- If you did not file all the required Form(s) W-2, submit them to the IRS, by attaching them behind the response page included with the Letter 98C. Under IRC 6721(a), Failure to File Correct Information Returns, original Forms W-2 received in response to CAWR inquiry are subject to a penalty of $50 for each document submitted.
- If you disagree with the issues on the letter, provide your explanation in a signed statement. If the Form(s) W-2 were previously filed with SSA, please provide proof of timely submission.
- If Forms W-2c or 941-X will resolve the discrepancy, include them in your reply. Be sure that any adjustments made do not cause your account to be out of balance.
- Mail or FAX your reply by the due date shown on the letter. Under IRC 6721(e), Failure to File Correct Information Returns with Intentional Disregard, taxpayers that do not respond to CAWR inquiry timely are subject to a penalty based on 10% of the aggregate difference between the employment tax returns filed with the IRS and Forms W-2 filed with SSA.
References/Related Topics
- What Are Employment Taxes?
- Internal Revenue Manual 4.19.4 Part 1, Part 2, Part 3
- Publication 15, (Circular E) Employer’s Tax Guide (PDF)
