Purpose

The purpose of this bulletin is to notify agencies of the 2020 Year End processing schedule for AC-230s (Report of Check Returned for Refund or Exchange).

Background

To maintain the efficiency of AC-230 processing and ensure accuracy of W-2 reporting for 2020, agencies must submit AC-230s to OSC in accordance with the processing schedule outlined in this bulletin.

Agencies must always forward payroll checks to the appropriate entity as soon as possible. As part of OSC’s Uncashed Payroll Check Outreach, any paychecks issued in 2019 that are not cashed, reversed, or reissued will be turned over to the Office of Unclaimed Funds in April 2021. Outreach to employees with uncashed paychecks issued in 2019 is underway.

Processing Dates

Paychecks issued prior to September 24, 2020 are due immediately.

Due to limited mail delivery during the COVID-19 pandemic, and the limited time to audit and process AC-230s, checks or check stop payment requests with accompanying AC-230s not received by the above listed deadlines may not be processed in time to be reflected on the employee’s 2020 W-2 (Wage and Tax Statement).

Processing Rules for Returning Checks

In accordance with the instructions for AC-230 processing, agencies are reminded that payroll checks must not be held or returned to OSC if either of the following situations apply:

• The employee is still actively employed by any State agency.
• The employee is due any regular and/or lump sum payments that are equal to or exceed the amount to be returned.

Agencies must e-mail the Payroll Reversal and Exchange mailbox to obtain prior approval to submit an AC-230 for a situation that warrants making an exception to the above.

Impact on Employee Form W-2 Reporting

The IRS considers overpayments for 2020 that are returned in 2021 to be income in 2020 for reporting purposes because the employee had use of the funds (constructive receipt). As a result, when an AC230 is received after the December 30, 2020 (Admin) or January 5, 2021 (Inst) deadline, the employee is due a corrected wage statement (Form W-2C). However, the Federal, State and Local withholding wage and tax balances for 2020 will not be reduced.

Impact on Recovery of Taxes

OSC has no ability to recover taxes for salary refunds that were originally paid in a prior year.

OSC Actions

OSC must issue a “corrected” Form W-2 (Form W-2C) for 2020 if an AC230 is received after the December 30, 2020 (Admin) or January 5, 2021 (Inst) deadline. Federal, State, and Local withholding wages and taxes will not be reduced. Only Social Security and Medicare wage and taxes will be updated to reflect the return of the funds and a credit letter will be sent to the employee by OSC. Credit letters are issued during year end processing as indicated in the Agency Actions chart below.

Agency Actions

Agencies must be diligent in their efforts to submit AC-230s timely. The NPAY539 (Non-Negotiated Payroll Checks) Control-D report, as described in Payroll Bulletin No. 908 (Non-Negotiated and/or Undeliverable New York State Payroll Checks), allows agencies to identify outstanding checks and take appropriate action.

Additionally, AC-230s must be submitted as soon as possible for direct deposit stops previously submitted by the agency. 

Before submitting an AC230, agencies must review and discuss any existing Q-codes that have been created in the employee’s record with their auditor. End dating and/or adjusting the Q-code should occur, if necessary, in order to mitigate any potential duplicate recovery.

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

* 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 this bulletin may be directed to the Payroll Deduction mailbox.

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