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What businesses should know about new SECURE 2.0 Act W-2 changes

Posted on May 9, 2024

Some businesses were not in compliance of 2023 changes under the SECURE 2.0 Act. Here’s what businesses should know for the year ahead.

New SECURE 2.0 Act changes include opportunities in various employer retirement plans to encourage use of these plans. The new provisions potentially affecting Forms W-2 (including Forms W-2AS, W-2GU and W-2VI) are:

  • De minimis financial incentives (Section 113 of the SECURE 2.0 Act),
  • Roth Savings Incentive Match Plan for Employees (SIMPLE) and Roth Simplified Employee Pension (SEP) Individual Retirement Arrangements (IRAs) (Section 601 of the SECURE 2.0 Act), and
  • Optional treatment of employer nonelective or matching contributions as Roth contributions (Section 604 of the SECURE 2.0 Act).

What are De minimis financial incentives?

These are specific changes designed to encourage employees to contribute to their employers’ 401(k) or 403(b) plans. The changes will allow employers to offer small financial incentives to employees who choose to participate in these retirement savings arrangements.

How are business taxes affected? If an employer offers such an incentive, it’s considered part of the employee’s income and is subject to regular tax withholding unless there’s a specific exemption. For more information, refer to Notice 2024-2, published in the IRS Bulletin.

Roth SIMPLE and Roth SEP IRAs are also included in the changes

Under section 601 of the SECURE 2.0 Act, an employer that maintains a SEP or SIMPLE IRA plan can offer participating employees the option of having their salary reduction contributions deposited in a Roth IRA instead of a traditional IRA. For more information, see Notice 2024-2, in the IRS Bulletin.

Contributions made at the employee’s election to a Roth SEP or Roth SIMPLE IRA are subject to federal income tax withholding, the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA). Your CPA can help you with the appropriate forms, or include contributions in boxes 1, 3 and 5 (or box 14 for railroad retirement taxes) of Form W-2. They’ll also be reported in box 12 with code F (for a SEP) or code S (for a SIMPLE IRA).

Employer contributions to a Roth SEP or Roth SIMPLE IRA are not subject to withholding for federal income tax, FICA or FUTA. However, these contributions should be reported on Form 1099-R for the year in which they’re allocated to the individual’s account.

Designated Roth non-elective and designated Roth matching contributions

SECURE 2.0 Act allows employees to designate certain matching and nonelective contributions made after Dec. 29, 2022, as Roth contributions. These contributions are not subject to withholding for federal income tax, Social Security or Medicare tax. For more information, refer to Notice 2024-2, published in the IRS Bulletin.

Unlike regular Roth contributions, designated Roth non-elective and matching contributions must be reported on Form 1099-R for the year in which they’re allocated to an individual’s account.

Ooops, what if your business missed this info?

Forms W-2 have been updated for tax years 2023 and 2024. Businesses can now complete and print various copies of Forms W-2. If a business has already filed 2023 Forms W-2 without following these new guidelines, they may need to file Form W-2c to correct any errors.

Your Teipen CPA Group business team will be happy to help you.