Your company may experience negative wages for employees at quarter-end. Negative wages most commonly occur when you void system-generated checks or perform quarter-to-date adjustments in the current quarter for an employee who terminated in the previous quarter. Although the employee's year-to-date totals may now be correct, the employee's quarter-to-date negative earnings may be unacceptable to a state or local agency.
What does the Tax Service do with negative wages?
The Tax Service receives two types of wage and tax information at quarter-end:
Company totals: Wage and tax totals per agency for your company
Employee totals: Wage and tax totals as required for all state unemployment agencies, Massachusetts and New York SIT State Income Tax agencies, and some local agencies in Kentucky and Pennsylvania
The state and local agencies listed above will not accept an employee's negative wage or tax totals on wage detail. The agencies require an amendment to the actual period the wages were over-reported.
The negative wages must be removed from the wage listing prior to submitting it to the agency. The Tax Service extracts the negative wages and re-totals the remaining, positive earnings on the wage detail. This new figure must equal the total amount of wages reported for your company, therefore, the Tax Service automatically adjusts your company's quarterly gross wages for the unemployment return to equal the new total of the employee's positive wages.
Is an amended return required?
Gross wage information reported per employee for prior quarters can only be adjusted with an amended return and wage listing. Without the amendment, the total earnings reported for individual employees are overstated to their actual earnings.
The Tax Service cannot make a true assessment of your amendment needs. Answer the following questions to help determine the need for an amended return:
1. Have wages and/or taxes been reported to the agency for the individual employee as well as for the company's totals?
State unemployment agencies, Massachusetts and New York SIT agencies, and some local agencies in Kentucky and Pennsylvania require both company totals and individual employee totals be reported quarterly. Negative wages and/or taxes for employees in these jurisdictions are generally the only taxing agencies in need of amendments. Federal and state income tax agencies do not require an individual employee's earnings until receipt of the W-2s.
2. What other factors must your company take into consideration in determining the need for an amended return?
Amount: The amount of negatives wages for your employee may be a factor in determining the need for an amended return. For example, your employee's negative wages for state unemployment may be <$15.00>. This employee's wages are overstated for the purpose of unemployment benefits by $15.00. Taking into consideration a standard amendment fee of $65.00, your company may elect to leave the over-reported wages as they are. Or,
Company Policy: Your company may have a policy regarding a "tolerance factor," such as the <$15.00>, regarding wages reported to the agency versus wages paid to the employee. Some companies require that all wages balance to the penny. If this were your company's policy, an amended return would be required regardless of the amendment fee. Or,
Agency: As a general rule, if earnings have had a tax withheld at any time during the year; e.g., NY SIT, local income tax, etc., the return must be amended.
Once a determination has been made that an amended return is required, forward a completed Amendment Request form and accompanying documentation to your Tax Service Representative. Details for completion of this form and additional documentation can be located in the "Requesting Amendments" section of this chapter.