Purpose

The purpose of this bulletin is to notify agencies of the 2021 Year End processing schedule for AC230s (Report of Check Returned for Refund or Exchange).

Background

To maintain the efficiency of AC230 processing and ensure accuracy of W-2 reporting for 2021, agencies must submit AC230s 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 2020 that are not cashed, reversed, or reissued will be turned over to the Office of Unclaimed Funds in April 2022. Outreach to employees with uncashed paychecks issued in 2020 is underway.

Processing Dates

Paychecks issued on October 27, 2021 and prior are due immediately.

Due to the limited time to audit and process AC230s, checks or check stop payment requests with accompanying AC230s not received by the above listed deadlines may not be processed in time to be reflected on the employee’s 2021 W-2 (Wage and Tax Statement).

Processing Rules for Returning Checks

In accordance with the instructions for AC230 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 AC230 for a situation that warrants making an exception to the above.

Impact on Employee Form W-2 Reporting

The IRS considers overpayments for 2021, returned in the same year, to be income in 2021 for reporting purposes because the employee had use of the funds (constructive receipt). As a result, when an AC230 is received after the December 29, 2021 (Admin) or January 3, 2022 (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 2021 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 2021 if an AC230 is received after the December 29, 2021 (Admin) or January 3, 2022 (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 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 AC230s 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, AC230s 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, to mitigate any potential duplicate recovery.

Please refer to the table below to determine whether 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 AC230s may be directed to the Payroll Reversal and Exchange mailbox.

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