Proposed National Wage Reporting System.

Background

The Internal Revenue Service, Social Security Administration, and the Federation of Tax Administrators are in the process of assessing the feasibility of a consolidated National wage Reporting System (NWRS) concerning information now provided to the federal government and the states under the Form W-2 Wage and Tax Statement filing program. In connection with this project, the FTA recently requested comments from Tax Executives Institute and other private sector "stakeholders" on the operational and legal questions raised by NWRS.

As explained by the FTA, the concept of a consolidated wage reporting system is straightforward:

Currently, employers report individual

employee wage, tax

withholding, and other information

annually to the Social

Security Administration and to

state tax agencies on paper or

magnetic media. Under the

NWRS, employers would be required

to file the federal and

state wage and tax information

with a single agency -- either

IRS or SSA. That agency

would, in turn, be responsible

for providing the data to state

tax agencies on a cost sharing

basis.

A functioning NWRS should

benefit all parties. It will simplify

wage and tax reporting for

employers and reduce their filing

burden. It will also increase

the utility of the wage

and tax information to state tax

agencies since the nature of the

current reporting programs is

such that maximum use cannot

be made of the data for compliance

purposes. The wage reporting

examination is also coupled

with an IRS effort to improve

the degree of standardization 

in Form W-2 Wage and

Tax Statements provided to

taxpayers. This standardization,

which is necessary to a

successful wage reporting system,

will also reduce the complexity

and burden an individual

taxpayer faces.

On December 20, TEI filed the following preliminary comments on the NWRS system with the FTA. Preparation of the comments -- which took the form of a letter from Timothy J. McCormally, TEI Tax Counsel, to FTA Executive Director Harley T. Duncan -- was coordinated by the Institute's State and Local Tax Committee (whose chair is Harry F. McKeon, Jr. of the Biltrite Corporation) and the Federal Tax Subcommittee on Payroll and Other Taxes (whose chair is Clifford H. Omo of Mobil Administrative Services Company). More detailed comments will be published in future issues of The Tax Executive.

TEI Submission

Following up on our conversation at the conclusion of the Federation's December 13 Forum on Administrative Uniformity, I am writing to confirm Tax Executives Institute's intention to file formal comments on FTA's draft system requirements for the proposed National Wage Reporting System (NWRS).(*) Regrettably, multitudinous year-end business obligations (as well as the previous scheduling of vacations by members of the appropriate Institute committees) make it impossible for TEI to respond in detail to your request for comments before the end of the year.

Nevertheless, at this time I want to provide an overview of TEI's concerns about the draft proposal and note that, for the most part, they parallel those raised by Carolyn Kelley of the American Payroll Association during the December 13 forum. First and foremost, TEI wholeheartedly agrees with the APA (as well as the FTA) that NWRS/SWRS has much to promise in terms of simplifying an employer's reporting and filing obligations and, concomitantly, also benefitting the States. Nevertheless, we believe it is essential that the system be developed with the broadscale participation of the employer community. Thus, we agree with APA that a more concerted effort needs to be made (and earlier rather than later) to meld together a discussion of system requirements -- what the States want to obtain from NWRS/SWRS and what is technologically possible -- with legal and policy questions concerning the dissemination and confidentiality of information submitted to the central reporting agency. TEI agrees.

Preliminary comments from TEI members highlight two principal taxpayer concerns with the NWRS/SWRS. First, TEI member re concerned that the individual States will not be satisfied with whatever the central reporting agency provides to them and will insist that employers provide a wide variety of reconciliation schedules. The cost and burden associated with such reconciliation statements could overwhelm the promised benefits of NWRS/SWRS. More fundamentally, TEI members have expressed concern about the wide-scale dissemination of information provided to the central reporting agency without the safeguards of information exchange agreements. This issue is raised by the statement on page 5 of the FTA draft that NWRS/SWRS should enable the States "to receive all data related to the earnings of a resident in all states and the earnings of a nonresident in all states so that a complete apportionment of earnings and withholdings can be obtained." As you know, such information is generally available pursuant to formal information exchange agreements, and TEI members believe that care must be taken in using NWRS/SWRS as a means of sidestepping the procedures and limitations set forth in those agreements.

In our detailed written statement, the Institute will elaborate on these concerns as well as on the issues identified in your request for comments. Please be assured that we shall file our comments as own as possible. In the meantime, if you wish to discuss this letter, please do not hesitate to call. (*) Our understanding is that the Internal Revenue Service and Social Security Administration have adopted the moniker "Single Wage Reporting System" (SWRS) for the system. Consequently, in this letter, we refer to the system as "NWRS/SWRS."