- 4.4.29 Social Security Administration (SSA) Adjustments
- 22.214.171.124 Introduction
- 126.96.36.199 Self-Employment Income Adjustments
- 188.8.131.52.1 Group Return Processing Procedures
- 184.108.40.206.1.1 Reference Code Changes to Self-employment Income/Tax
- 220.127.116.11 Group Procedures for Adjustments to Tip Income
- 18.104.22.168.1 Group Procedures
- 22.214.171.124.2 Reference Code Changes to Tip Income
- 126.96.36.199.3 CCP Procedures for Reviewing Form 885-T
- 188.8.131.52 Group Procedures for FICA Tax Adjustments
- 184.108.40.206 Group Procedures for FICA or Railroad Retirement Tax Adjustments Due to Tip Income
Part 4. Examining Process
Chapter 4. AIMS Procedures and Processing Instructions
Section 29. Social Security Administration (SSA) Adjustments
May 10, 2011
(1) This transmits revised IRM 4.4.29, AIMS Procedures and Processing Instructions, Social Security Administration (SSA) Adjustments.
(1) Minor editorial changes have been made throughout this IRM. Also, website addresses, form references, and IRM references were reviewed and updated as necessary. Other significant changes to this IRM include the following:
IRM 220.127.116.11.1 was deleted. Procedures for returns filed before 1/1/86 are no longer necessary.
IRM 18.104.22.168.1 was deleted. Tip income is no longer manually reported.
IRM 22.214.171.124 was revised to eliminate obsoleted forms and refer the examiner to the current IRM for processing of Federal Insurance Contributions Act (FICA) adjustments.
IRM 126.96.36.199.1 was revised and renumbered to IRM 188.8.131.52.3.
IRM 184.108.40.206 was updated and renumbered to IRM 220.127.116.11.
Charlestine D. Hardy
Director, Examination Planning and Delivery
Small Business/Self Employed
This chapter contains procedures for reporting income and tax adjustments to the Social Security Administration (SSA).
The following procedures are for cases in which the increase to self-employment income (SEI) brings the total SEI to over $399.99 or any decrease to SEI if the original SEI was greater than $399.99.
Adjustments to self-employment tax are forwarded to SSA electronically by Centralized Case Processing (CCP) during the case closure process.
The following information must be provided by the examiner to CCP by taking one or more of the actions below:
Include the computer generated page of the Revenue Agent Report (RAR) attached to the Form 5344Examination Closing Record containing the reference number information; or
Enter the correct figures in Item 15 on Form 5344.
Changes to self-employment income/tax are input using the following reference codes in Item 15 of Form 5344 for examination adjustments:
The net increase or decrease to the (SEI) of the primary taxpayer —Reference Number 878. The Reference Number 878 amount is the SEI adjustment multiplied by .9235. The amount entered with Reference Number 878 must not bring the taxpayer’s total SEI over the maximum amount subject to self-employment tax. Reference Number 889 is required with Reference Number 878.
The net increase or decrease to the SEI of the secondary taxpayer—Reference Number 879. The Reference Number 879 amount is the SEI adjustment multiplied by .9235. The amount entered with Reference Number 879 must not bring the taxpayer’s total SEI over the maximum amount subject to self-employment tax. Reference Number 889 is required with Reference Number 879.
The net increase or decrease for the primary taxpayer that is subject to Medicare tax — Reference Number 895.
The net increase or decrease for the secondary taxpayer that is subject to Medicare tax — Reference Number 896.
The net increase or decrease to the total self-employment tax is the Reference Number 889 amount. This amount must reflect the total self-employment tax adjustment for both taxpayers if applicable.
If Reference Number 878 or 879 is entered but there is no adjustment to be made to the self-employment tax due because the adjustments made to income did not change the tax, Reference Number 889 must be entered with a "zero" amount. AIMS and Master File programming will accept the input of Reference Number 889 with a "zero" amount.
On no change cases where there has been a change to the self-employment income/tax, Reference Numbers 878 or 879 and 889 must still be input. Item 12 must contain a transaction code TC 300 for zero, Item 13 must be Disposal Code 01, and Item 15 must contain the appropriate reference numbers.
Tip income can result in changes to both income and FICA/Medicare taxes. The procedures for reporting the FICA/Medicare changes are listed below.
If an examination results in an adjustment to tip income or a delinquent return is secured after a substitute for return (SFR) TC 150 has posted, the following information will be supplied by the examiners to CCP by taking one or more of the actions below:
Ensure the correct figures are entered in item 15 of Form 5344. Refer to IRM 18.104.22.168.2
Complete Form 885-T, Adjustment of Social Security Tax on Tip Income Not Reported to Employer.
Changes to tip income are input by reference codes in Item 15 of Form 5344 for Examination adjustments:
Reference Number Description 891 Adjustment to Primary Unreported Tip Income 892 Adjustment to Secondary Unreported Tip Income 898 Amount of Unreported tip income adjustment for the primary taxpayer that is subject to Medicare tax 899 Amount of unreported tip income adjustment for the secondary taxpayer that is subject to Medicare tax
Only one taxpayer's name may appear on Form 885-T. It must be legible and match the name on Form 5344 for the taxpayer whose SSA account is being adjusted. If both names appear and it can be determined from the examiner's workpapers which name is correct, line out the incorrect name. If such a determination cannot be made, return the case to the originator.
The taxpayer's address must match the Master File address and also be legible.
The social security number (SSN) on the form must match that shown on the Form 5344 including any corrections, with one exception; if a joint return was filed under the husband's SSN and the wife's SSA account is being adjusted, the wife's SSN must appear on the form even though it is not shown on Form 5344.
When an examination results in an adjustment to employee share of FICA where the employer is not liable due to Section 530 of the Revenue Act of 1978, 95 PL 600, Form 885-E, Schedule for FICA Tax Adjustment of Wages not Previously Reported, must be prepared. IRM 22.214.171.124.9, Adjustment for Employee FICA Tax, contains procedures for completion of the form.
The tax adjustment in Item 12, of Form 5344 will include any adjustment in FICA or railroad retirement tax which is due to an adjustment in tip income. The penalty (50% unreported tax) will be shown separately in Item 12, and will be coded with TC 310 or 311.
If the adjustment involves railroad retirement tax, the case file will include a memorandum to the Railroad Retirement Board (RRB) stating the employee’s name and SSN, the name of the railroad employer and the increase or decrease in the amount subject to railroad retirement tax. CCP will remove the memorandum from the case file and forward it to:
Director of Budget and Fiscal Operations
Railroad Retirement Board
844 Rush Street
Chicago, IL. 60611
If the taxpayer reports salary income on Form 1040, U.S. Individual Income Tax Return, but fails to report the tip income, the requirement for filing a return for this category of tax has not been met. To determine the statute of limitations to assess the social security tax on tip income, refer to Rev. Rul. 79-39, 1979-1 C.B. 435. According to Rev. Rul. 79-39, the period of limitation for assessment of the social security taxes on the tip income is still open after the expiration of the three year statute for the Form 1040.