We welcome back guest blogger Bob Kamman who, as usual, causes us to think about something that we would easily pass by without further thought. While it is wonderful that Bob is writing guest blogs, he continues to write comments that deserve careful reading as well. If you have not already looked at his comment on my post regarding the link between social security benefits and filing tax returns, you should do so. Similarly, if you were at all interested in my post last week on worker classification, you need to read his comment there. I wrote the post before the Court entered the order in the case. Bob picks up the link to the order that came out last week. It is a fascinating order and those with worker classification issues might want to see the orders entered in those types of cases. Keith
Here is a word-association question. What is your first thought when you hear “January 31”?
I polled some family members and most remembered it’s my birthday. But for millions of Americans, and especially tax practitioners, the likely answer is “W-2 Form.” January 31 is the deadline for employers to distribute these “Wage and Tax Statements” to employees.
Like most taxpayers, you know about Form W-2, but did you ever wonder what happened to Form W-1? I did, and I researched it so now you won’t have to. Along the way, I came across a novel tax administration idea: What if taxpayers whose only income is shown on W-2 forms could just fill out the back of the form with the names of their dependents; add a small amount of other income, if any; sign it; and send it to IRS?
My search for Form W-1 led me to the Code of Federal Regulations edition of 1949 (another significant date in my life) and specifically to Section 405.601, “Return and payment of income tax withheld on wages.” It provided:
“(a) Every person required, under the provisions of section 1622, I.R.C., to deduct and withhold the tax on wages shall make a return and pay such tax on or before the last day of the month following the close of each of the quarters ending March 31, June 30, September 30, and December 31. Such return is to be made on Form W-1, Return of Income Tax Withheld on Wages, and must be filed with the collector of internal revenue for the district in which is located the principal place of business or office of the employer . . .There shall be included with the return filed for the fourth quarter of the calendar year or with the employer’s final return, if filed at an earlier date, the triplicate of each withholding tax receipt (Form W-2a) furnished employees.”
So there you have it. Before there was a Form 941, Employer’s Quarterly Federal Tax Return, there was a Form W-1 filed quarterly with the Bureau of Internal Revenue. The Form W-2 dates back to those early days, as does Form W-3. Here is employment tax procedure from the same Regulations:
“(b) The triplicate Forms W-2a, when filed with the collector, must be accompanied by Form W-3 and a list (preferably in the form of an adding machine tape) of the amount shown on Form W-2. If an employer’s total payroll consists of a number of separate units or establishments, the triplicate Forms W-2a may be assembled accordingly and a separate list of tape submitted for each unit. In such case, a summary list or tape should be submitted, the total of which will agree with the corresponding entry to be made on Form W-3. Where the number of triplicate receipts is large, they may be forwarded in packages of convenient size. When this is done, the packages should be identified with the name of the employer and consecutively numbered and Form W-3 should be place in package No. 1. The number of packages should be indicated immediately after the employer’s name on Form W-3. The tax return, Form W-1, and remittance in cases of this kind should be filed in the usual manner, accompanied by a brief statement that Forms W-2a and W-3 are in separate packages.”
The word “triplicate” might bring memories of carbon paper. Anyone under 30, though, might ask “what is carbon paper?”
But these regulations for Form W-1 mention nothing about Social Security tax withholding, which nowadays is also reported on the quarterly Form 941. How did employers deal with that, in times past?
The answer is in Regulations Section 601.43, “Forms.”
“(a) Description. The forms specially applicable in connection with the employment taxes, copies of which may be secured from collectors of internal revenue, are as follows:
There was also a Form SS-9 available to employees who had paid more than the maximum FICA tax because they earned more than $3,000 combined from more than one employer. They had to claim this refund with a Form 843, filed no more than two years after the year the excess FICA was paid.
It was not until 1950 that the separate Forms W-1 and SS-1a were combined into the single Form 941. At the same time, employers with a combined payroll tax liability of more than $100 each month were required to pay taxes at a member bank of the Federal Reserve system with a “Federal Depositary Receipt.”
And it was not until 1978 that quarterly lists of employees and their wages were not required by Social Security. Today, benefits are still based on “quarters” of coverage, but a quarter is determined by income received at any time during the year. For 2018, every $1,320 of earnings results in a quarter of coverage, up to four a year.
I mentioned above the innovative proposal of using the reverse side of Form W-2 as a tax return — perhaps, the next best thing to a postcard. Suppose your only income is from wages, a situation in which millions of Americans find themselves. Why not just sign the form, mail it to IRS, and let them figure the tax?
Well, actually, that’s the way it could be done until 1948. The back of the W-2 had lines to list exemptions. If more than one W-2 was received, there was a box to show how many others were attached. If the spouse had more than $500 income, that W-2 could be attached also. Another line allowed reporting of interest, dividends, and other income if those sources added up to less than $100. The taxpayer signed the back — there was also a signature line for a spouse with income — and the return was mailed to Internal Revenue, which would compute and assess the tax, with refund or balance due. A Tax Table was published for those curious to know what those amounts would be, or to check the collector’s math.
A page of history is worth a volume of logic, as Justice Oliver Wendell Holmes Jr. noted in New York Trust Co. v. Eisner, 256 U.S. 345, 349 (1921). Those seeking a logical reason for the current lack of a Form W-1 may find this page of history helpful.