SECURE 2.0 Act changes impact Form W-2 reporting for businesses
The IRS has issued a reminder that changes under the SECURE 2.0 Act, effective from tax year 2023, may affect how businesses report certain amounts on Forms W-2.
The new provisions under the act introduce several features designed to encourage employee participation in employer retirement plans, which in turn affect W-2 reporting requirements.
Key changes under the SECURE 2.0 Act
The SECURE 2.0 Act includes several provisions that impact employer-sponsored retirement plans and how contributions are reported.
Notably, it affects the following:
- De minimis financial incentives (Section 113)
- Roth SIMPLE and Roth SEP Individual Retirement Arrangements (IRAs) (Section 601)
- Optional treatment of employer nonelective or matching contributions as Roth contributions (Section 604)
De minimis financial incentives for retirement plan participation
Section 113 of the SECURE 2.0 Act allows employers to offer small financial incentives, known as de minimis incentives, to encourage employees to contribute to 401(k) or 403(b) retirement plans.
These incentives are considered taxable income and are subject to standard tax withholding unless a specific exemption applies.
Reporting requirements for de minimis incentives:
- De minimis incentives offered by employers should be included in the employee's income.
- The incentives are subject to federal income tax withholding, as well as Social Security and Medicare taxes.
For further details, refer to Questions and Answers D-1 through D-6 in Notice 2024-2, available in the Internal Revenue Bulletin.
Roth SIMPLE and Roth SEP IRAs
Under Section 601, employers that maintain SIMPLE or SEP IRA plans can offer employees the option to designate their contributions to a Roth IRA.
This change provides greater flexibility for employees who prefer Roth contributions over traditional pre-tax contributions.
Key reporting requirements for Roth SIMPLE and SEP IRAs:
-
Salary reduction contributions to a Roth SIMPLE or Roth SEP IRA are subject to federal income tax withholding, Federal Insurance Contributions Act (FICA) taxes, and Federal Unemployment Tax Act (FUTA) taxes.
These amounts should be reported in boxes 1, 3, and 5 (or box 14 for railroad retirement taxes) of Form W-2, and in box 12 with code F (for a SEP) or code S (for a SIMPLE IRA). -
Employer matching and nonelective contributions to a Roth SIMPLE or Roth SEP IRA are not subject to federal income tax withholding, FICA taxes, or FUTA taxes.
These contributions must be reported on Form 1099-R for the year they are made, with amounts listed in boxes 1 and 2a and code 2 or 7 in box 7. The IRA/SEP/SIMPLE checkbox should also be checked.
For more information, see Questions and Answers K-1 through K-8 in Notice 2024-2.
Designated Roth nonelective and matching contributions
Section 604 of the SECURE 2.0 Act allows plans to permit employees to designate certain matching and nonelective contributions made after December 29, 2022, as Roth contributions.
These contributions are generally not subject to federal income tax withholding or Social Security and Medicare taxes.
Reporting guidelines for designated Roth contributions:
- Unlike regular Roth contributions, designated Roth nonelective and matching contributions must be reported on Form 1099-R for the year they are allocated to the employee's account. These contributions should be reported in boxes 1 and 2a, using code "G" in box 7.
Summary of Form W-2 and Form 1099-R reporting requirements
Depending on the type of contribution made under a Roth IRA or a designated Roth account, different reporting requirements apply.
The following table summarizes these requirements:
| Contribution type | Form W-2 reporting | Form 1099-R reporting |
|---|---|---|
| Roth IRA under a SEP or SIMPLE IRA plan | Include salary reduction contributions in boxes 1, 3, and 5 (or box 14 if railroad retirement taxes apply) of Form W-2. Report them in box 12 using code F (for a SEP) or code S (for a SIMPLE IRA). | Report matching or nonelective contributions in boxes 1 and 2a of Form 1099-R for the year in which the contributions are made to the Roth IRA, using code 2 or 7 in box 7. Check the IRA/SEP/SIMPLE checkbox. |
| Designated Roth account under an applicable retirement plan | Include designated Roth contributions (made in lieu of elective deferrals) in boxes 1, 3, and 5 (or box 14 if railroad retirement taxes apply) of Form W-2. Report them in box 12 using code AA (for a section 401(k) plan), BB (for a section 403(b) plan), or EE (for a governmental section 457(b) plan). | Report designated Roth matching contributions or designated Roth nonelective contributions in boxes 1 and 2a of Form 1099-R for the year they are allocated to the individual’s account, using code G in box 7. |
Important reminders for businesses
Businesses can now complete and print various copies (excluding Copy A) of Forms W-2 (including Forms W-2AS, W-2GU, and W-2VI) directly on IRS.gov for recipients.
Any information entered on one copy will automatically appear on the others, except for Copy A, which cannot be completed online for filing with the Social Security Administration.
If a business filed 2023 Forms W-2 without following these updated guidelines, they may need to file Form W-2C to correct any errors. For guidance on when and how to file Form W-2C, refer to the General Instructions for Forms W-2 and W-3.
For additional details on the SECURE 2.0 Act and its impact on retirement plan reporting, consult the 2024 General Instructions for Forms W-2 and W-3 and the 2024 Instructions for Forms 1099-R and 5498.