IRS Publication Addresses New Form W-2 and Form 1099-R Requirements:

On May 2, the IRS published a Fact Sheet providing guidance on Form W-2 and 1099-R reporting, in light of certain SECURE 2.0 provisions. The Fact Sheet addresses provisions in that law which are permitted but not required in retirement plans. Per this IRS guidance, the SECURE 2.0 provisions potentially affecting Forms W-2 are as follows:

  • De minimis financial incentives:  Plan sponsors can offer small financial incentives to employees (e.g., a gift card of up to $250.00) who choose to participate in the plan. If an employer offers such an incentive, it is considered part of the employee’s income and is therefore subject to regular tax withholding and Form W-2 reporting.
  • Roth Savings Incentive Match Plan for Employees (SIMPLE) and Roth Simplified Employee Pension (SEP):  An employer that sponsors a SIMPLE or SEP IRA plan can offer participating employees the option of having their salary reduction contributions deposited in a Roth IRA instead of in a traditional IRA. Contributions made at an employee’s election to a Roth SIMPLE or Roth SEP IRA are subject to federal income tax withholding, the Federal Insurance Contributions Act (“FICA”) and the Federal Unemployment Tax Act (“FUTA”). These contributions should be included in boxes 1, 3 and 5 of Form W-2. They must also be reported in box 12 with code F (for a SEP IRA) or code S (for a SIMPLE IRA).     
  • Optional Treatment of Employer Nonelective or Matching Contributions as Roth Contributions:  Plans can allow employees to designate certain matching and nonelective contributions made after December 29, 2022 as Roth contributions. These contributions are not subject to withholding for federal income tax, Social Security, or Medicare tax. Unlike regular Roth contributions, designated Roth nonelective and matching contributions must be reported on Form 1099-R for the year in which they are allocated to an individual’s account (in boxes 1 and 2a of Form 1099-R, and code “G” is used in box 7).