IRS reminds employers that implementing certain optional retirement plan provisions of SECURE 2.0 affect Form W‑2 and Form 1099‑R reporting starting in 2023
The IRS recently issued Fact Sheet 2024‑18 to highlight how three SECURE 2.0 provisions, if offered by a plan sponsor, are reported on Forms W-2 (including Forms W‑2As, W‑2GU and W‑2VI) and Forms 1099‑R beginning with the 2023 tax year. Those provisions are:
- de minimis financial incentives,
- ROTH SIMPLE IRAs and ROTH SEP IRAs, and
- designated ROTH employer contributions, most of which were discussed in two prior DWT advisories here and here.
Plan sponsors who have implemented these features must use updated tax reporting forms (or, as applicable, file amended tax reporting forms) to comply with their reporting obligations.
De Minimis Financial Incentives
SECURE 2.0 permits a plan sponsor to incentivize employees to make deferral contributions to a 401(k) or a 403(b) plan by offering a de minimis financial reward to employees who do not have an existing deferral election. The reward may be in cash or in the form of a cash equivalent (such as a gift card) and must be reported as taxable income on Form W‑2 for each employee who receives a reward.
ROTH SIMPLE IRAs and ROTH SEP IRAs
An employer that sponsors either a SIMPLE IRA plan or a SEP IRA plan may allow plan participants to elect to have their deferral contributions made to a ROTH IRA rather than a traditional IRA. If a participant so elects, the contributions are subject to income tax and employment tax withholding and should be included in Boxes 1, 3, and 5 (or Box 14 for railroad retirement taxes) of Form W‑2, as well as in Box 12 (Code F for a SEP or Code C for a SIMPLE IRA). Employer matching or nonelective contributions to a ROTH SIMPLE IRA or a ROTH SEP IRA are reported on Form 1099‑R for the year the contributions are made, specifically in Boxes 1 and 2a with Code 2 or 7 in Box 7 and with the IRA/SEP/SIMPLE box checked.
Designated ROTH Employer Contributions
Sponsors of 401(a), 403(b), and governmental 457(b) plans can permit fully vested participants to designate that employer matching contributions and nonelective contributions be made on a ROTH basis. Those contributions are not subject to income tax or employment tax so they are not reported on Form W‑2. Instead they must be reported in Boxes 1 and 2a of Form 1099‑R for the year in which they are allocated to a participant's account and Code G is entered in Box 7.
The IRS has updated the tax reporting forms for these changes and the updated forms should be used for any year in which any of the SECURE 2.0 options are offered. If a plan sponsor implemented any of these features for 2023 and these amounts were not correctly reported on 2023 Form W‑2 or 2023 Form 1099‑R, as applicable, amended forms may need to be prepared, filed with the IRS, and distributed to plan participants.
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