Purpose

To inform agency payroll officers of the new procedure for how OSC will handle current year Social Security and/or Medicare (FICA) tax deficiencies for inactive employees

Affected Employees

Employees who incurred a Social Security and/or Medicare tax deficiency and have since left the New York State payroll

Background

Employees who have taxable income subject to Social Security and Medicare taxes must have the employee’s share of the taxes withheld.

Employers are required to remit payment, in full, of both the employee and employer share of the taxes to the United States Department of Treasury.

When an employee’s net pay is not sufficient to withhold the employee’s share of the taxes, a deficiency is incurred. OSC advances the employee share of taxes to the United States Department of Treasury on behalf of the employee.

OSC’s current business practice is to establish a deficiency deduction in the New York State Payroll System to recover the monies advanced. For inactive and retired employees these deficiencies are rarely recovered.

OSC has implemented a new procedure to ensure the tax deficiencies are paid by the former employee.

Former employees who incur a current year Social Security and/or Medicare tax deficiency will now have their taxable gross wages (Federal, State, and Local, if applicable) increased or “grossed up” by the amount of the Social Security and/or Medicare tax deficiency on their Form W-2 (Wage and Tax Statement). As a result, employees will now be responsible for the payment of any additional income taxes, if any.

Please refer to Attachment A for template to be used for employee notification.

Effective Date(s)

Immediately

Agency Actions

In order to assist Agencies with identifying their impacted employees, OSC has developed a locked query located in PayServ Query Manager, INACTIVEEMPLID_TAXDEFICIENCY, that Agencies can run as the year-end approaches.

Agencies must provide written notice (email is satisfactory), in a timely manner, to their employees who will be receiving a Form W-2 that has been grossed up for the amount of any current year unpaid Social Security and/or Medicare deficiency balance. Agencies must maintain a copy of this notification for four years beyond the year for which the Form W-2 has been issued.

OSC Actions

OSC will run a query at year end to identify inactive employees who have a current year Social Security and/or Medicare tax deficiency that remains unpaid. The amount of the outstanding deficiency will be added to the employee’s Federal, State, Local (if applicable) wages reflected in Boxes 1, 16, and 18 of the employee’s current year Form W-2. The employee will be responsible for paying any additional income taxes on this amount.

Questions

Questions regarding deficiency incurred as a result of a Workers’ Compensation related transaction may be emailed to the Workers’ Compensation mailbox. Questions regarding all other deficiencies can be emailed to the Tax and Compliance mailbox.