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Date: January 14, 2010

Bulletin Number: 967

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Subject

Processing salary refunds (AC230s) submitted to OSC after the January 11, 2010 deadline

Purpose

To inform agencies of the process for handling the late submission of AC230s and the impact on employee’s Form W-2 and agency appropriations.

Affected Employees

Employees who have a salary refund (AC230) submitted and processed after the 2009 deadline as described in payroll bulletin 900.

Effective Date(s)

Immediately

Background

As stated in Payroll Bulletin 900 – Schedule for Submitting 2009 Returned Paychecks, AC230s submitted by January 11, 2009 can be reflected in the employee’s Form W-2 and be refunded in full to the agency appropriation. Unfortunately there are limits on what can be done if the AC230 is submitted after this date.

Impact on Employee Form-W2 Reporting
When an AC230 is submitted after January 11, 2010, the employee is due a corrected wage statement (Form W-2C) but, in most cases, will remain subject to Federal, State and Local taxes for 2009. Also, the Federal, State and Local tax balances for 2010 will not be reduced by the amount of this refund. The IRS considers overpayments for 2009 that are returned in 2010 to be income in 2009 for reporting purposes because the employee had use of the funds (constructive receipt).

There is an exception when the entire original check is returned. The IRS considers that constructive receipt has not occurred and therefore the employee should not have the income reported or be subject to any taxation.

Impact on Recovery of Taxes by the Agency
OSC has a limited ability to recover taxes for salary refunds that were originally paid in a prior year. The IRS requires the employer apply a reasonable standard when requesting refunds for prior year taxes. Refunds are requested through the quarterly IRS reported process and therefore must adhere to an established timetable. Therefore, OSC will only seek refunds of taxes for AC230s received by February 19, 2010.

OSC Actions

OSC will be required to issue a corrected Form W-2 (Form W2C) for 2009 if an AC230 is processed after the January 11, 2010 deadline. If the original check is returned, all wages and taxes will be reduced on the FormW-2C. If a personal or agency check is submitted with the AC230, Federal, State and Local wages and taxes will not be changed. Only Social Security and Medicare wages and taxes will be updated to reflect the return of the funds and a credit letter will be sent to the employee by OSC along with the 2010 FormW-2. (See Payroll Bulletin 837 – Change in Processing Form W-2C (Corrected Wage and Tax Statement) and Issuance of Credit Statements.

Agency Actions AC230s for the entire original check received by OSC prior to February 19, 2010 should include the taxes as a recoverable item. Any AC230 received after February 19, 2010 should be completed with taxes listed on the AC230 form as unrecoverable.

Agencies must be diligent in their efforts to submit AC230’s timely.
The NPAY539 (Non-Negotiated Payroll Checks), Control D Report, as described in Payroll Bulletin 908, (Non-Negotiated and/or Undeliverable New York State Payroll Checks) was created as a tool for the agencies to identify outstanding checks so appropriate action can be taken.

Questions Questions regarding this bulletin may be directed to the Payroll Deductions mailbox.