Combined Annual Wage Reporting Employment Tax Problem Inquiries
The Social Security Administration (SSA) and Internal Revenue Service (IRS) have an agreement to exchange employment tax data. SSA shares Form W-2 data with the IRS and the IRS shares Form 941, 943, 944, 945 (henceforth called Form 94X) and Schedule H data with SSA.
The Combined Annual Wage Reporting (CAWR) is a document matching program that compares the Federal Income Tax (FIT) withheld, Medicare wages, Social Security wages, and Social Security tips reported to the IRS on the Forms 94X and Schedule H against the amounts reported to SSA via the processed totals of the Forms W-2 and the amounts reported to IRS on Forms 1099R, 1099-G, and W-2G.
When this reconciliation results in an apparent underpayment of taxes or over withholding of FIT an IRS-CAWR case is created.
IRS-CAWR cases are reviewed by tax examiners who attempt to reconcile the discrepancy without contact with the employer. This includes additional research to determine if information was recently filed and/or corrected in the interim. The tax examiner review begins in April each year for the second preceding tax year (for example: during 2014 IRS is analyzing tax year 2012 IRS-CAWR cases). If, after the initial case analysis, a discrepancy remains, the tax examiner issues a Letter 99C, P Letter of Employment Tax Problem (CAWR). The Letter 99C informs the taxpayer of a discrepancy between amounts reported on the employment tax returns (i.e.: the Forms 94X or Schedule H) and amounts on the following information returns: Forms W-2, 1099R, 1099G and W-2G.
The IRS must receive your response within 45 days of the date of the 99C Letter. If a response is not received within this timeframe the case will be closed, and the employer will be subject to the additional tax increase outlined in the correspondence.
How to Prepare Your Response:
- If you use the services of an accountant or payroll service provider they will receive a copy from the IRS.
- Review your employment tax information and compare it to the issues raised on the CAWR letter.
- If you did not file all the required Form(s) 941, submit them to the IRS, by attaching them behind the response page included with the Letter 99C.
- If you disagree with the issues on the notice/letter, provide your explanation in a signed statement.
- If corrections to your information returns or an amendment to your employment tax return(s) will resolve the discrepancy, include them in your reply. Be sure that any adjustments made do not cause your account to be out of balance.
- Mail or fax your reply by the due date shown on the notice/letter. If you do not respond, we will complete our processing based on the information we have and send you a bill for the tax, penalties and interest.