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Date: December 9, 2014

Bulletin Number: 1365

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Subject

Processing 2014 Salary Refunds Received by OSC After January 5, 2015

Purpose

To inform agencies of the process for handling the late submission of Form AC230 (Report of Check Return For Refund Or Exchange) and the impact on the employee’s 2014 Form W-2 (Wage and Tax Statement) and agency appropriations.

Affected Employees

Employees who have a salary refund (AC230) submitted and processed after the January 5, 2015 deadline.

Effective Date(s)

Immediately.
Background

AC230s received by January 5, 2015 will be reflected in the employee’s 2014 Form W-2 and the agency appropriation will be refunded in full.  Unfortunately, there are processing limitations for AC230s received after this date.

Impact on Employee Form-W2 Reporting
The IRS considers overpayments for 2014 that are returned in 2015 to be income in 2014 for reporting purposes because the employee had use of the funds (constructive receipt).  As a result, when an AC230 is received after the January 5, 2015 deadline, the employee is due a corrected wage statement (Form W-2C).  However, in most cases, the Federal, State and Local tax withholding balances for 2014 will not be reduced.

The exception to the constructive receipt rule is when the entire original check is returned.  The IRS deems that constructive receipt has not occurred.  Therefore, the employee should not have the income reported or subject to taxation.

Impact on Recovery of Taxes

OSC has a limited ability to recover taxes for salary refunds that were originally paid in a prior year.  The IRS requires employers to apply a reasonable standard when requesting refunds for prior year taxes.  OSC will only seek refunds of Federal, State and Local taxes for 2014 AC230s submitted with original checks and received by February 27, 2015.

OSC Actions

OSC is required to issue a “corrected” Form W-2 (Form W-2C) for 2014 if an AC230 is received after the January 5, 2015 deadline.  If the original check is returned, all wages and taxes will be reduced on the Form W-2C.         

If a personal or agency check is submitted with the AC230, Federal, State and Local wages and taxes will not be reduced.  Only Social Security and Medicare wage taxes will be updated to reflect the return of the funds and a credit letter will be sent to the employee by OSC.

Agency Actions

Agencies must be diligent in their efforts to submit AC230s 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 agencies to identify outstanding checks and take appropriate action.

Please refer to the table below to determine whether or not to include Federal, State and Local taxes on the Form AC230.

Check Type

Include SS/Med Tax on AC-230

Include Federal Tax on AC-230

Include State
Tax on
AC-230

Include Local Tax on AC-230

Employee Receives a Corrected W-2

Employee Receives a Credit Letter the Following January

Original 2014 Pay Check

 

 

 

 

 

 

OSC Receipt 1/6/15 - 2/27/15

YES

YES

YES

YES

YES

NO

OSC Receipt On/ After 3/1/15

YES

NO*

NO*

NO*

YES

YES

 

 

 

 

 

 

 

Personal, Bank or Agency Check

 

 

 

 

 

 

OSC Receipt 1/6/15 - 2/27/15

YES

NO*

NO*

NO*

YES

YES

OSC Receipt On/After 3/1/15

YES

NO*

NO*

NO*

YES

YES

* Taxes should be included in the check as gross wages, and employee will receive a corrected W-2 and/or Credit Letter.

Questions

Questions regarding AC-230s may be emailed to the Payroll Deductions mailbox.

Questions regarding Tax implications may be emailed to the Tax and Compliance mailbox.