Free Reply in Support of Motion - District Court of Arizona - Arizona

R ANDOLPH G . B ACHRACH
ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 (602) 852-9540
(AZ #12621 - CA #93278)

Attorney for Plaintiff

United States District Court
FOR THE DISTRICT OF ARIZONA

DAVID L. MAZET, Plaintiff, vs. HALLIBURTON COMPANY LONGTERM DISABILITY PLAN; and, HARTFORD LIFE & ACCIDENT INSURANCE COMPANY, Defendants.
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No.: CV 04 0493 PHX FJM REPLY IN SUPPORT OF PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT and RESPONSE TO DEFENDANTS' CROSS-MOTION FOR SUMMARY JUDGMENT

Plaintiff submits the following: 1) Reply in Support of his Motion for Summary Judgment Following Administrative Decision on Remand ("MSJ"); and, 2) Response to Defendants' Cross-motion for Summary Judgment (X-MSJ): MEMORANDUM OF POINTS & AUTHORITIES I. Preliminary statement.

Hartford's Response to Plaintiff's MSJ and its X-MSJ on the remand issue lack substantial support in the evidence and the record. Thus, Plaintiff is entitled to judgment on the remand issue of whether or not Hartford properly calculated the amount of Mr. Mazet's predisability earnings. The evidence shows that Hartford relied upon inaccurate wage information from the employer and incorrectly calculated Mr. Mazet's pre-disability earnings. This error had a substantial negative impact both on the correct amount of "own occupation" benefits to which Mr. Mazet was entitled, and, on the subsequent decision to deny Mr. Mazet continuing "any occupation" disability benefits. Because Mr. Mazet's voluntary contributions

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RANDOLPH G. BACHRACH
ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

to his 401(k) plan were improperly omitted from his predisability earnings the Plan Administrator is required to correctly recalculate the amount of such benefits. Hartford's claim forms required the employer to provide copies of Mr. Mazet's W-2 wage statements to support the amount of his predisability earnings. Yet, Hartford then (during the initial claim) and now (on remand) has consciously avoided these documents even though Mr. Mazet made them available to Hartford and its counsel prior to the remand process and decision. This is an impermissible self-serving decision by the Plan Administrator. Hartford's decision on remand is both wrong and constitutes a violation of its fiduciary duties as an ERISA plan administrator. II. Relevant Ninth Circuit case law, since the time of this Court's previous grant of summary judgment to Defendants, requires a de novo standard of review.

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Hartford asserts that "the abuse-of-discretion standard applies" to the pending motions because the Court previously so ruled with respect to the prior MSJ. (Defts'. Response & XMSJ, 5:20). In light of subsequent relevant case law, this is no longer the case. As the Court is aware, Hartford never responded to Mr. Mazet's administrative appeal. Nevertheless, the Court declined to follow Jebian v. Hewlett-packard Co. Employee Benefits Org. Income Prot. Plan, 349 F.3d 1098 (9th Cir. 2003) and ruled that deferential review would apply based upon the decision in Gatti v. Reliance Standard Life Ins. Co., 415 F.3d 978 (9th Cir. 2005). (ORDER re Standard of Review, Docket # 38.) Since the time of the Court's initial Order (re Standard of Review), the Ninth Circuit has issued its decision in Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955 (9th Cir. 2006). Citing Jebian as an example of "that rare class of cases" justifying de novo review (notwithstanding discretionary plan language), the Abatie Court held that: In general, we review de novo a claim for benefits when an administrator fails to exercise discretion. See Jebian, 349 F.3d at 1106 (holding that an administrator failed to exercise its discretion when it did not make a benefits decision within the 60 days specified by the terms of the plan and the applicable regulation, so that the ultimate decision rendered was "undeserving of deference"). Other circuits have also held that review is de novo
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RANDOLPH G. BACHRACH

ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

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when the plan administrator fails to exercise discretion. See Nichols v. Prudential Ins. Co. of Am., 406 F.3d 98, 109 (2d Cir. 2005) (holding that a "deemed denied" claim, in which the administrator did not issue a decision within the time required by the regulations, constituted "inaction," which was not an exercise of discretion and which therefore was entitled to no deference; de novo review applied); Gilbertson v. Allied Signal, Inc., 328 F.3d 625, 632 (10th Cir. 2003) (noting that "[d]eference to the administrator's expertise is inapplicable where the administrator has failed to apply his expertise to a particular decision"); Gritzer v. CBS, Inc., 275 F.3d 291, 296 (3d Cir. 2002) ("Where a trustee fails to act or to exercise his or her discretion, de novo review is appropriate because the trustee has forfeited the privilege to apply his or her discretion.. . . "). Similarly, when a plan administrator's actions fall so far outside the strictures of ERISA that it cannot be said that the administrator exercised the discretion that ERISA and the ERISA plan grant, no deference is warranted. This case does not, however, fall into that rare class of cases. Instead, we face the more ordinary situation in which a plan administrator has exercised discretion but, in doing so, has made procedural errors. We turn, finally, to a discussion of how we are to consider such procedural errors in reviewing a denial of benefits. 458 F.3d 955, at 972. A plain reading of the decision in Abatie is that, as a matter of law, failing to exercise discretion (a fortiori, never responding to an administrative appeal, as here) rises to that level of fiduciary breach sufficient to warrant the forfeiture of deferential review. Accordingly, Plaintiff requests that the Court revisit the issue of the appropriate standard of review. Because the entire case should be reviewed under a single consistent standard, Plaintiff requests that the remand issue (now before the Court) and the initial grant of judgment to Defendants (by way of reconsideration and supplemental briefs) be determined under the appropriate de novo standard of review. III. Significant inconsistencies in the employer's several verifications of predisability salary amounts is evidence of lack of reliability and credibility.

As Defendants' brief points out, Mr. Mazet's employer has supplied different wage figures in response to several requests for verification of pre-disability earnings. (Defts'. Response & X-MSJ, 4:13). This discrepancy is not insignificant and is clear evidence that the employer's wage verifications are not reliable and lack substantial credibility. Given these
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RANDOLPH G. BACHRACH
ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

significant discrepancies it is inexcusable that the employer did not support its statements with employment documents, including, Mr. Mazet's W-2 wage statements, especially, since Hartford requested such documentary support during the initial claim. It is equally inexcusable that Hartford intentionally refused to enforce its own written requirements either during the initial claim processing or during the recent remand process. (See, Docket #22, Plaintiff's SOF/MSJ, Exhibit 3, CF-00540.) Further evidence that the employer's wage verification lacks substantial credibility exists on the face of the statement itself. The more recent (2007) employer wage verification states that Mr. Mazet's "current rate is [$]16.90 hour at time of separation." (Defts'. Response & X-MSJ, 4:3). This is impossible and absurd because that amounts to only $2,974.40/mo., which is far less than any previous verified earnings statement. And, it is thousands of dollars less than the amount reported to the I.R.S. by the employer on Mr. Mazet's 1999 W-2 wage statements. It is obvious that the employer's unsupported wage statements cannot and should not be trusted. IV. 401(k) retirement plan "deferred compensation" remains compensation.

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Hartford correctly notes that "[t]he monthly rate of basic earnings provided by Halliburton does not appear to include Mazet's `deferred compensation'" (see, Defts'. Response & X-MSJ, 4:19). Mr. Mazet's contributions to his 401(k) plan, as reported by the employer on his W-2 wage statements, show that these were voluntary "deferred compensation" contributions from Mr. Mazet's regular earnings. No part of these contributions were paid by Mr. Mazet's employer. Mr. Mazet received no "extra" compensation or other "benefit" from the employer with respect to his 401(k) retirement plan. This is a fact which is absolutely verified by the manner in which these contributions were reported (i.e., the "box" which was utilized to report these amounts) on Mr. Mazet's W-2s, by the employer. Hartford feigns ignorance with respect to Mr. Mazet's "deferred compensation" and the basic 401(k) rules of reporting contributions. (Defts'. Response & X-MSJ, ). For
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RANDOLPH G. BACHRACH
ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

example. Hartford argues: "[t]he 1999 form gives no indication what "Code D" is" (Defts'. Response & X-MSJ, 4:22); "Mazet's wage and tax statement gives no indication exactly what his deferred compensation includes" (Defts'. Response & X-MSJ, 4:25); ". . . Hartford determined that deferred compensation does not count because it is not `regular monthly pay from the Employer . . . .'" (Defts'. Response & X-MSJ, 5:10); "[Mr. Mazet] asserts--with no citation to the record--that what his W-2 forms list as `DEF COMP 401(k)' represents `fully self-funded and voluntary contributions from his salary into his 401(k) retirement plan . . . .'" (Defts'. Response & X-MSJ, 6:14); and, ". . . it is equally possible that Mazet's deferred compensation actually represents Halliburton's contributions to Mazet's 401(k), or some form of bonus, commission, or extra compensation that was deposited into that account" (Defts'. Response & X-MSJ, 7:15). Even a cursory examination of I.R.S. Form W-2 instructions would have revealed to Hartford that all of the "deferred compensation" reported by Mr. Mazet's employer on his W2 wage statements consisted of voluntary contributions from his regular earnings. The year at issue is 1999. Mr. Mazet's W-2 statement for that year shows the amount of $8,785.65 entered as Code "D" in box No. 13. (See, Plaintiff's SOF/MSJ, Exh. 3.) The I.R.S. Instructions for box 13 (1999 Form W-2) provides, in relevant part: Also, include elective deferrals to certain qualified cash or deferred compensation arrangements and to retirement arrangements described in box 13, in codes D, E, F, G, and S, even though the deferrals are not includible in box 1. (Exhibit 1, attached, Internal Revenue Service: Instructions for Forms W-2 and W-3 (1999) , page 7 (emphasis added). And, the Instructions explain the meaning of the various "code" designations: [Code] D -- Elective deferrals to a section 401(k) cash or deferred arrangement. Id., page 9 (emphasis added). Finally, I.R.S. informational guidelines provide a defining statement regarding 401(k) Plans which repudiates in full Hartford's arguments and unmasks its pretended ignorance:
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RANDOLPH G. BACHRACH
ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

A section 401(k) plan is a type of tax-qualified deferred compensation plan in which an employee can elect to have the employer contribute a portion of his or her cash wages to the plan on a pre­tax basis. These deferred wages (commonly referred to as elective deferrals) are not subject to income tax withholding at the time of deferral, and they are not reflected on your Form 1040 (PDF) since they were not included in the taxable wages on your Form W-2 (PDF). However, they are included as wages subject to social security, Medicare, and federal unemployment taxes. Topic 424 - 401(k) Plans, http://www.irs.gov/taxtopics/tc424.html, (emphasis added). The above information and Instructions to Form W-2 speak clearly enough for themselves. Hartford's feigned ignorance as to the source and nature of Mr. Mazet's 401(k) contributions is simply an attempt to avoid explaining why it failed to require documentation from the employer supporting the various and inconsistent earnings statements. Hartford asserts that ". . . Mazet's position is that, because deferred compensation is nothing more than regular salary that he elected to funnel to his 401(k) rather than receiving in his paycheck, it should still be counted as part of his predisability earnings." (Defts'. Response & X-MSJ, 6:17). Plaintiff could not agree more. As well, there is no reasonable, legal or contractual basis upon which Hartford is able to dispute Mr. Mazet's position. V. It is Hartford's obligation to obtain from the employer credible, reliable documentary verification of pre-disability earnings, including, W-2 wage statements.

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Hartford claims that Mr. Mazet (during the initial claim and on remand) should have submitted to Hartford copies of his W-2 wage statements as proof of his actual pre-disability earnings. (Defts'. Response & X-MSJ, 4:20). This is a silly argument because Hartford never asked (either during the claim or the remand) that Mr. Mazet verify his pre-disability earnings. The Plan and Policy contain no requirement that the claimant verify his own wages, for any purpose. Rather, the claim file and Hartford's own claim documents provide to the contrary, i.e., it is the employer who must verify the claimant's wages. This is only logical. And that verification must be true, accurate and supported by proper documentation, specifically, W-2 wage statements were appropriate, as here.

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RANDOLPH G. BACHRACH

Hartford does not cite any provision of the Plan which supports this position and none exists. In fact, Hartford makes this argument as a smokescreen to mask its failure and refusal to comply with or to enforce its own written forms and instructions directed to the employer on this subject. (See, Docket #22, Plaintiff's SOF/MSJ, Exhibit 3, CF-00540.) It is inexcusable that Hartford, even upon remand of this very issue, did not specifically instruct the employer to comply with this written request to supply Hartford with supporting copies of Mr. Mazet's W-2 wage statements. This fact speaks volumes regarding Hartford's intent to ignore the facts in order to justify its fiduciary violations both at the time of the original claim, as well as, on remand. VI. None of the Policy's exceptions to pre-disability earnings apply to Mr. Mazet.

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ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

Hartford's denial letter (on remand) states as the basis for denial: Deferred compensation does not qualify as "Monthly Rate of Basic Earnings" because your deferred compensation is not your regular monthly pay from your employer. *** . . . we have found that "deferred compensation" is not considered when calculating your Monthly Rate of Basic Earnings. Defendants' Supplement to the Administrative Record, CFsupp-00135. Hartford provides no Policy or claim processing guidelines to support this basis for denial. Hartford's basis of denial fails upon examining the Policy language. The Policy lists only four exceptions to a claimant's "regular monthly pay" for purposes of calculating the "Monthly Rate of Basic Earnings." (Id.) Hartford does not state nor argue that any of these exceptions apply to Mr. Mazet's 401(k) "deferred compensation." In fact, none apply. Thus, Hartford's basis of denial (on remand) is nothing more than a gratuitous invention not supported by the Policy. Logic alone dictates that "deferred compensation" remains compensation, receipt of which is merely delayed ("deferred"). Hartford's stated reason to deny Mr. Mazet's remand claim is without any basis in the Policy or Plan. It should be rejected by the Court. ...
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RANDOLPH G. BACHRACH

VII.

Numerous other arguments in support of Hartford's Response to MSJ and Cross-motion are not supported by the facts or the record.

Hartford claims that it "actually overpaid" Mr. Mazet during the "own occupation" disability period. (Defts'. Response & X-MSJ, 5:16). There is no reliable evidence to support this claim because the employer's several wage "verifications" (as seen, above) are inherently inconsistent and thereby lack substantial credibility. Hartford further argues that "this Court must affirm Hartford's decisions on Mazet's claim unless Hartford made those decisions `. . . in a way that conflicts with the plain language of the plan, or that is based on clearly erroneous findings of fact.'" (Defts'. Response & X-MSJ, 5:23). The evidence proves that Hartford is guilty of each of the above. First, Hartford's decisions directly conflict with the Plan because there is no provision in the Policy which supports Hartford's argument that "deferred compensation" should not be counted with the total compensation received by the claimant in determining pre-disability earnings. Second, Hartford's decisions are based on clearly erroneous facts because it relied upon unreliable and inconsistent wage statements provided by the employer without supporting documentation, as was required in writing, by Hartford's claim forms. Hartford further argues that "the W-2 forms are not part of the administrative record because Mazet did not submit them to Hartford for its consideration." (Defts'. Response & X-MSJ, 6:27). This is a spurious argument wholly unsupported by the facts. Because Mr. Mazet submitted his W-2 statements to Defendants and to the Court prior to the remand Order, and, prior to Hartford's claim processing on remand, Hartford's argument is patently disingenuous. Hartford's argument with respect to submission ofMr. Mazet's W-2 wage statements should be rejected for another obvious reason -- it is false, on its face. A plain reading of the denial letter (see, Defendants' Supplement to the Administrative Record, CFsupp-00135) reveals that it openly refers to the W-2 statements. It is difficult to imagine how it would be possible to not have reviewed these documents and still be able to refer to them as a basis for denial. In any event, even if it is technically true that the W-2 statements
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ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

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RANDOLPH G. BACHRACH
ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

were not formally submitted on remand, the fact that Hartford referred to them in its denial letter constitutes a waiver of any objection to these documents. Hartford further claims that Mr. Mazet failed to exhaust his administrative remedies on remand. (Defts'. Response & X-MSJ, 7:2). Hartford claims that Mr. Mazet never before asserted that his 401(k) "deferred compensation" was from his salary (i.e., voluntary contributions from his salary to his retirement plan). Hartford misstates the failure to exhaust rule, which applies to administrative remedies, not, individual factual arguments made in support of litigation claims. Hartford provides no authority to the contrary, as this would be a breathtaking expansion of the law relating ERISA exhaustion. In any event, the W-2 statements are self-evident and dispositive on this point. As the I.R.S. Instructions (to Form W-2) indicate (supra), Mr. Mazet's "deferred compensation" is, by definition, a voluntary contribution from his regular salary. Thus, they are included in total predisability earnings. Hartford also argues that "Halliburton, has taken the position that [Mr. Mazet's "deferred compensation to 401(k)] is not part of his basic rate of monthly earnings." (Defts'. Response & X-MSJ, 7:20). This is false and unsupported by the record. Hartford makes this claim based solely on the fact that the employer failed to include Mr. Mazet's 401(k) contributions in either of the wage statements provided to Hartford. And, that is the fault of Hartford in not enforcing its own written claim processing requirements to provide documentary support for the wage statement. From the record, it would be an equally reasonable assumption that the employer has no opinion on the subject (since this is essentially a Policy interpretation matter) and/or simply made a mistake (e.g., a computer error) in its research of Mr. Mazet's pre-disability earnings. Hartford also objects (not surprisingly) to Mr. Mazet's request to revisit the Court's initial grant of summary judgment to Defendants. (Defts'. Response & X-MSJ, 9:10). Hartford bases its objection upon the purported "new earnings information supplied by Halliburton." (Defts'. Response & X-MSJ, 10:16). Yet, the "earnings" statements supplied by the employer (both "new" and "old") are facially unreliable and lack substantial credibility
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RANDOLPH G. BACHRACH
ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

by reason of their inherent inconsistencies. Thus, Hartford's objection lacks substantial support in the evidence. On the other hand, Plaintiff's request is well founded in light of recent case law confirming the rule in Jebian (supra) which held that a de novo review should apply where the plan administrator has failed to exercise discretion (e.g., as here, by failing to respond to the claimant's appeal, ever.)1 VIII. Conclusion. Ninth Circuit case law (Abatie, supra) decided since the original decision of the Court granting judgment to Defendants should be interpreted as resolving any conflict that may have existed between Jebian (supra) and Gatti (supra) with respect to the appropriate standard of review where, as here, the plan administrator has failed to exercise discretion. Based on existing case law at the time of the Court's initial ruling, this Court applied a deferential standard of review. According to Abatie, the appropriate standard of review now in this case is de novo. Accordingly, the Court should apply a consistent review as to the entire case, including, a reconsideration of the original grant of judgment to Defendants. With respect to the remand decision, the evidence that Hartford's decision was both incorrect and an abuse of discretion is overwhelming. The lack of reliability and credibility with respect to the employer's various and inconsistent wage statements is apparent on its face. And, the record shows that Hartford actively avoided seeking any supporting documentation, including, W-2 wage statements, even though it had requested such documentation from the employer at the time of the initial claim. Thus, based on the overwhelming evidence that Mr. Mazet's voluntary 401(k) contributions were made from what would otherwise have been his taxable wages, such amounts should have been included

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Hartford makes a back-up (alternative) argument asking that the Court remand the entire case in the event of (and before) revisiting the initial judgment. (Defts'. Response & X-MSJ, 10:19). This argument is based on a false premise that the prior "labor market survey" is outdated. This is not true because the issue to be decided still involves the period of time encompassed by the initial claim. Hence, the existing wage data initially obtained is sufficient for Hartford's purposes and remand is unnecessary.

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as pre-disability earnings under the Policy, and Plaintiff is entitled to entry of judgment on the remand issue. Finally, if the Court determines that de novo review is appropriate to the remand issue, the parties should be afforded an opportunity to supplementally brief the entire case in light of the modified review standard, and Plaintiff so requests.

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DATED: August 31, 2007

RANDOLPH G. BACHRACH Attorney at Law

RANDOLPH G. BACHRACH

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ATTORNEY AT LAW 5103 E. THOMAS ROAD PHOENIX, ARIZONA 85018 S (602) 852-9540

By s/Randolph G. Bachrach Randolph G. Bachrach 5103 E. Thomas Road Phoenix, Arizona 85018 Attorney for Plaintiff I hereby certify that on August 31, 2007 I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants:
Thomas Klinkel Scott Bennett LEWIS & ROCA, LLP 40 N. Central Ave. Phoenix, Arizona 85004-3329 Attorneys for Defendants

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25

s/Randolph G. Bachrach

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EXHIBIT 1
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a Control number

22222

Void

For Official Use Only OMB No. 1545-0008 1 Wages, tips, other compensation 2 Federal income tax withheld

b Employer identification number

c Employer's name, address, and ZIP code

3

Social security wages

4

Social security tax withheld

5

Medicare wages and tips

6

Medicare tax withheld

7

Social security tips

8

Allocated tips

d Employee's social security number

9

Advance EIC payment

10

Dependent care benefits

e Employee's name (first, middle initial, last)

11

Nonqualified plans

12

Benefits included in box 1

13

See instrs. for box 13

14

Other

15 Statutory f Employee's address and ZIP code 16 State Employer's state I.D. no. 17 State wages, tips, etc. 18 State income tax

employee

Deceased

Pension plan

Legal rep.

Deferred compensation

19 Locality name 20 Local wages, tips, etc.

21 Local income tax

W-2

Wage and Tax Statement

Copy A For Social Security Administration--Send this entire page with Form W-3 to the Social Security Administration; photocopies are not acceptable.

1999

Form

Department of the Treasury--Internal Revenue Service For Privacy Act and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 10134D

Do NOT Cut, Staple, or Separate Forms on This Page -- Do NOT Cut, Staple, or Separate Forms on This Page

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(Also see Notice to Employee on back of Copy B) Box 1. Enter this amount on the wages line of your tax return. Box 2. Enter this amount on the Federal income tax withheld line of your tax return. Box 8. This amount is not included in boxes 1, 3, 5, or 7. For information on how to report tips on your tax return, see your Form 1040 instructions. Box 9. Enter this amount on the advance earned income credit payments line of your Form 1040 or 1040A. Box 10. This amount is the total dependent care benefits your employer paid to you or incurred on your behalf (including amounts from a section 125 (cafeteria) plan). Any amount over $5,000 also is included in box 1. You must complete Schedule 2 (Form 1040A) or Form 2441, Child and Dependent Care Expenses, to compute any taxable and nontaxable amounts. Box 11. This amount is (a) reported in box 1 if it is a distribution made to you from a nonqualified deferred compensation or section 457 plan or (b) included in box 3 and/or 5 if it is a prior year deferral under a nonqualified or section 457 plan that became taxable for social security and Medicare taxes this year because there is no longer a substantial risk of forfeiture of your right to the deferred amount. Box 12. This amount is the taxable fringe benefits included in box 1. You may be able to deduct expenses that are related to fringe benefits; see the Form 1040 instructions. Box 13. The following list explains the codes shown in box 13. You may need this information to complete your tax return. Note: If a year follows code D, E, F, G, H, or S, you made a make-up pension contribution for a prior year(s) when you were in military service. To figure whether you made excess deferrals, consider these amounts for the year shown, not the current year. If no year is shown, the contributions are for the current year. A--Uncollected social security or RRTA tax on tips (Include this tax on Form 1040. See "Total Tax" in Form 1040 instructions.) B--Uncollected Medicare tax on tips (Include this tax on Form 1040. See "Total Tax" in Form 1040 instructions.) C--Cost of group-term life insurance over $50,000 (included in box 1) D--Elective deferrals to a section 401(k) cash or deferred arrangement. Also includes deferrals under a SIMPLE retirement account that is part of a section 401(k) arrangement. E--Elective deferrals under a section 403(b) salary reduction agreement F--Elective deferrals to a section 408(k)(6) salary reduction SEP

Instructions

G--Elective and nonelective deferrals to a section 457(b) deferred compensation plan H--Elective deferrals to a section 501(c)(18)(D) tax-exempt organization plan (see "Adjusted Gross Income" in Form 1040 instructions for how to deduct) J--Nontaxable sick pay (not includible as income) K--20% excise tax on excess golden parachute payments (see "Total Tax" in Form 1040 instructions) L--Substantiated employee business expense reimbursements (nontaxable) M--Uncollected social security or RRTA tax on cost of group-term life insurance coverage over $50,000 (former employees only) (see "Total Tax" in Form 1040 instructions) N--Uncollected Medicare tax on cost of group-term life insurance coverage over $50,000 (former employees only) (see "Total Tax" in Form 1040 instructions) P--Excludable moving expense reimbursements paid directly to employee (not included in box 1) Q--Military employee basic housing, subsistence, and combat zone compensation (use this amount if you qualify for EIC) R--Employer contributions to your medical savings account (MSA) (see Form 8853, Medical Savings Accounts and Long-Term Care Insurance Contracts) S--Employee salary reduction contributions to a section 408(p) SIMPLE (not included in box 1) T--Adoption benefits (not included in box 1). You must complete Form 8839, Qualified Adoption Expenses, to compute any taxable and nontaxable amounts. Box 15. If the "Pension plan" box is checked, special limits may apply to the amount of traditional IRA contributions you may deduct. If the "Deferred compensation" box is checked, the elective deferrals in box 13 (codes D, E, F, G, H, and S) (for all employers, and for all such plans to which you belong) are generally limited to $10,000. Elective deferrals for section 403(b) contracts are limited to $10,000 ($13,000 in some cases; see Pub. 571). The limit for section 457(b) plans is $8,000. Amounts over these limits must be included in income. See "Wages, Salaries, Tips, etc." in the Form 1040 instructions. Note: Keep Copy C of Form W-2 for at least 3 years after the due date for filing your income tax return. However, to help protect your social security benefits, keep Copy C until you begin receiving social security benefits, just in case there is a question about your work record and/or earnings in a particular year. SSA suggests you confirm your work record with them from time to time.

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Employers, Please Note--
Specific information needed to complete Form W-2 is given in a separate booklet titled 1999 Instructions for Forms W-2 and W-3. You can order those instructions and additional forms by calling 1-800-TAX-FORM (1-800-829-3676). You can also get forms and instructions from the IRS's Internet Web Site at www.irs.ustreas.gov. Caution: Because the SSA processes paper forms by machines, you cannot file with the SSA Forms W-2 and W-3 that you print from the IRS's Internet Web Site. Due dates. Furnish Copies B, C, and 2 to the employee generally by January 31, 2000. File Copy A with the SSA generally by February 29, 2000. Send all Copies A with Form W-3, Transmittal of Wage and Tax Statements. However, the due date if you file electronically (not by magnetic media) is March 31, 2000.

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1999
Instructions for Forms W-2 and W-3
Wage and Tax Statement and Transmittal of Wage and Tax Statements
Section references are to the Internal Revenue Code unless otherwise noted.
Contents Changes To Note . . . . . . . . . . . . . . . . . Need Help? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Substitute Forms How To Get Forms and Publications . . . . . . . Earned Income Credit (EIC) Notification . . . . . General Instructions for Forms W-2 and W-3 . . Special Reporting Situations for Form W-2 . . . Penalties . . . . . . . . . . . . . . . . . . . . . . Specific Instructions for Form W-2 . . . . . . . . Specific Instructions for Form W-3 . . . . . . . . Privacy Act and Paperwork Reduction Act Notice . . . . . . . Reference Guide for Box 13 Codes Index . . . . . . . . . . . . . . . . . . . . . . . . Page . 1 . . 1 . . 1 . . 1 . . 2 . . 2 . . 3 . . 6 . . 6 . 10 . 11 . 12 . 12
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Department of the Treasury Internal Revenue Service

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Changes To Note
Election workers. Report on Form W-2 payments of $600 or more to election workers for services performed in state, county, and municipal elections. File Form W-2 for payments of less than $600 paid to election workers if social security and Medicare taxes were withheld under a section 218 (Social Security Act) agreement. Do not report election worker payments on Form 1099-MISC. Extended due date for electronic filers. If you file your 1999 Forms W-2 with the SSA electronically (not by magnetic media), the due date is extended to March 31, 2000. For information on how to file electronically, call the SSA at 1-800-772-6270. Separate fringe benefit reporting optional. You no longer need to separately report taxable fringe benefits that are shown in box 1 of Form W-2, except for the annual lease value of a vehicle provided to your employee. However, you must report the lease value of a vehicle in box 12 or on a separate statement to your employee. Incorrect address on employee's Form W-2. Employers may reissue a Form W-2 to the employee by placing the Form W-2 with an incorrect employee address in an envelope with the correct address for mailing to the employee. See Employee's incorrect address on Form W-2 on page 3 for details and other options. Optional reporting for USERRA makeup amounts. Employers may report certain makeup contributions by an employee to a pension plan under the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) by providing a separate statement to the employee instead of by entering them in box 13 of Form W-2. See USERRA makeup amounts to a pension plan on page 6 for details.

about reporting on these forms, call 304-263-8700. If you have questions about magnetic media filing of Forms W-2, contact the Social Security Administration (SSA). See Magnetic media reporting on page 2. Help for people with disabilities. Telephone help is available using TTY/TDD equipment. If you have questions about reporting on information returns--Forms 1096, 1098, 1099, 5498, W-2, W-2G, and W-3, you may call 304-267-3367. For other tax information, please call 1-800-829-4059. Bulletin board services. Using a personal computer and a modem, you can get information from either of two electronic Bulletin Board Systems (BBS)--the SSA­BBS or the IRP­BBS (IRS). You can access the SSA­BBS by dialing 410-965-1133 or the IRP­BBS (IRS) by dialing 304-264-7070. Information available includes magnetic media filing information, some IRS and SSA forms and publications, information on electronic filing, and general topics of interest about information reporting. You can also use the bulletin board systems to ask questions about magnetic media or electronic filing programs and reporting on information returns. Employment tax publications. Detailed employment tax information is given in: Circular A, Agricultural Employer's Tax Guide (Pub. 51), Circular E, Employer's Tax Guide (Pub. 15), Pub. 15-A, Employer's Supplemental Tax Guide, and Pub. 926, Household Employer's Tax Guide.

Substitute Forms
If you are not using the official IRS form to furnish Form W-2 to employees or to file with the SSA, you may use an acceptable substitute form that complies with the rules in Pub. 1141, General Rules and Specifications for Private Printing of Forms W-2 and W-3. Pub. 1141, which is revised annually, is a revenue procedure that explains the requirements for format and content of substitute Forms W-2 and W-3. Your substitute forms must comply with the requirements in Pub. 1141.

How To Get Forms and Publications
Personal computer. Access the IRS's Internet web site at www.irs.ustreas.gov to do the following: Download forms, instructions, and publications. See answers to frequently asked tax questions. Search publications on-line by topic or keyword. Send us comments or request help via e-mail. Sign up to receive hot tax issues and news by e-mail from the IRS Digital Dispatch. You can also reach us using: Telnet at iris.irs.ustreas.gov File Transfer Protocol at ftp.irs.ustreas.gov Direct Dial (by modem) at 703-321-8020. CD-ROM. Order Pub. 1796, Federal Tax Products on CD-ROM, and get: Current year forms, instructions, and publications.

Need Help?
Information reporting call site. The IRS operates a centralized call site to answer questions about reporting on Forms W-2, W-3, 1099, and other information returns. If you have questions

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Prior year forms and instructions. Popular forms that may be filled in electronically, printed out for submission, and saved for recordkeeping. Visit www.irs.ustreas.gov/cdorders on the Internet to buy the CD-ROM from the National Technical Information Service (NTIS) for $13 (plus a $5 handling fee) and save 35%, or call 1-877-CDFORMS (1-877-233-6767) toll-free to buy the CD-ROM for $20 (plus a $5 handling fee). (Prices subject to change.) By phone and in person. You can order forms and publications 24 hours a day, 7 days a week, by calling 1-800-TAX-FORM (1-800-829-3676). You can also get most forms and publications at your local IRS office.




Earned Income Credit (EIC) Notification
You must notify employees who have no income tax withheld that they may be eligible for an income tax refund because of the EIC. You can do this by using the official IRS Form W-2 that contains an EIC notice on the back of Copy B or a substitute Form W-2 with the same statement. If you use a substitute Form W-2 that does not contain the EIC notice, you are not required to furnish Form W-2, or you do not furnish a timely Form W-2 to your employee, you must give your employee Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC), or your own statement that contains the same wording. For more information, see section 10 in Circular E (Pub. 15).

General Instructions for Forms W-2 and W-3
Who must file Form W-2. Employers must file Form W-2 for wages paid to each employee from whom: Income, social security, or Medicare taxes were withheld or Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee's Withholding Allowance Certificate. Also, every employer engaged in a trade or business who pays remuneration for services performed by an employee, including noncash payments, must furnish a Form W-2 to each employee even if the employee is related to the employer. If you are required to file 250 or more Forms W-2, see Magnetic media reporting below. Who must file Form W-3. Anyone required to file Form W-2 must file Form W-3, Transmittal of Wage and Tax Statements, with Copy A of Forms W-2. Make a copy of Form W-3 and keep it with Copy D (For Employer) of Forms W-2 for your records. Be sure to use Form W-3 for the correct year. Household employers, even those with only one household employee, must file Form W-3 with Form W-2. On Form W-3 mark the "Hshld. emp." checkbox in box b. A transmitter or sender (including a service bureau, paying agent, or disbursing agent) may sign Form W-3 for the employer or payer only if the sender: 1. Is authorized to sign by an agency agreement (either oral, written, or implied) that is valid under state law and 2. Writes "For (name of payer)" next to the signature. If an authorized sender signs for the payer, the payer is still responsible for filing, when due, a correct and complete Form W-3 and related Forms W-2, and is subject to any penalties that result from not complying with these requirements. Be sure the payer's name and employer identification number (EIN) on Forms W-2 and W-3 are the same as those used on the Form 941, 943, CT-1, or Schedule H (Form 1040) filed by or for the payer. When to file. File Copy A of Form W-2 with the entire page of Form W-3 by February 29, 2000. You may owe a penalty for each Form W-2 you file late. If you terminate your business, see Terminating a business on page 5. Extension to file. You may request an extension of time to file Form W-2 by sending Form 8809, Request for Extension of Time To File Information Returns, to the address shown on that

form. You must request the extension before the due date of Forms W-2 for your request to be considered. If approved, you will have an additional 30 days to file. See Form 8809 for more details. Note: Even if you receive an extension to file Form W-2, you must still furnish Form W-2 to your employees by January 31, 2000. But see Extension to furnish Forms W-2 to employees on page 3. Where to file. File Copy A of Form W-2 with the entire page of Form W-3 at the following address: Social Security Administration Data Operations Center 1150 E. Mountain Dr. Wilkes-Barre, PA 18769-0001 Note: If you use "Certified Mail" to file, change the ZIP code to "18769-0002." If you use an IRS approved private delivery service, add "ATTN: W-2 Process, 1150 E. Mountain Dr." to the address and change the ZIP code to "18702­7997". See Circular E (Pub. 15) for a list of IRS approved private delivery services. Reminder: Do not send cash, checks, stamps, etc. with the Forms W-2 and W-3 that you submit to the SSA. Remittances for employment taxes should be sent to the IRS. Send Copy 1 of Form W-2 to your state, city, or local tax department. For more information concerning Copy 1, contact your state, city, or local tax department. Shipping and mailing. If you file more than one type of employment tax form, please group Forms W-2 of the same type, with a separate Form W-3 for each type, and send them in separate groups. See the specific instructions for box b of Form W-3. Please do not staple or tape Form W-3 to the related Forms W-2 or Forms W-2 to each other. These forms are machine read. Staple holes or tears interfere with machine reading. If you have a large number of Forms W-2 to send with one Form W-3, you may send them in separate packages. Show your name and EIN on each package. Number them in order (1 of 4, 2 of 4, etc.) and place Form W-3 in package 1. Show the number of packages at the bottom of Form W-3 below the title. If you mail them, you must send them First-Class. Note: Extra postage may be necessary if the package you send contains more than a few pages or if the envelope is larger than letter size. Magnetic media reporting. If you are required to file 250 or more Forms W-2, you must file them on magnetic media (or electronically) unless the IRS granted you a waiver. You may be charged a penalty if you fail to file on magnetic media (or electronically) when required. Note: You are encouraged to file on magnetic media (or electronically) even though you are filing fewer than 250 Forms W-2. You may request a waiver on Form 8508, Request for Waiver From Filing Information Returns on Magnetic Media. Submit Form 8508 to the IRS at least 45 days before the due date of Form W-2. See Form 8508 for filing information. If you are filing Forms W-2 on magnetic media, you will need Form 6559, Transmitter Report and Summary of Magnetic Media, and you may also need Form 6559-A, Continuation Sheet for Form 6559. Do not use Form W-3. Note: If you file on magnetic media (or electronically), do not file the same returns on paper. Magnetic media reporting specifications for Form W-2 are in the SSA's Pub. No. 42-007 (TIB-4), Magnetic Media Reporting, and Pub. No. ICN (MMREF-1), Magnetic Media Reporting and Electronic Filing. They can be downloaded from the SSA's bulletin boards using a computer and modem by dialing 410-965-1133 or 410-965-8450 (On-Line Wage Reporting Bulletin Board). You can also get magnetic media (or electronic) specifications by contacting any Social Security Magnetic Media Coordinator. Call 1-800-772-6270 for the phone number of the coordinator in your area. You may also write to:

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Social Security Administration Attn: Employee Reporting Services Center Room 3-B-10 NB, Metro West 300 North Greene Street Baltimore, MD 21201 Reporting instructions for magnetic media filing may differ from the paper reporting instructions. For example, magnetic media filers may enter more than three items in box 13 in one individual's wage report, but paper filers are limited to three entries in box 13. Furnishing Copies B, C, and 2 to employees. Furnish Copies B, C, and 2 of Form W-2 to your employees, generally, by January 31, 2000. You will meet the "furnish" requirement if the form is properly addressed and mailed on or before the due date. If employment ends before December 31, 1999, you may give copies at any time after employment ends, but no later than January 31, 2000. If an employee asks for Form W-2, give him or her the completed copies within 30 days of the request or within 30 days of the final wage payment, whichever is later. However, see Terminating a business on page 5. You may give Forms W-2 to employees on IRS official forms or on acceptable substitute forms (see Substitute Forms on page 1). Be sure the Forms W-2 you provide to employees are clear and legible and comply with the requirements in Pub. 1141. Extension to furnish Forms W-2 to employees. You may request an extension of time to provide Forms W-2 to employees by sending a letter to: IRS--Martinsburg Computing Center Information Reporting Program Attn: Extension of Time Coordinator P.O. Box 1359 Martinsburg, WV 25402-1359 Mail your letter on or before the due date for furnishing Forms W-2 to employees. It must include: 1. Your name and address, 2. Your employer identification number, 3. Type of return, 4. Reason for delay, 5. A statement that you are requesting an extension to furnish Forms W-2 to employees, and 6. Your signature or that of your authorized agent. Undeliverable Forms W-2. Keep for 4 years any employee copies of Forms W-2 that you tried to deliver but could not. Taxpayer identification numbers. The IRS uses social security numbers (SSNs) to check the payments you report against the amounts shown on the employees' tax returns. The SSA uses SSNs to record employee earnings for future social security and Medicare benefits. When you prepare Form W-2, be sure to show the correct SSN for each employee. Employers use an employer identification number (EIN) (00-0000000). Employees use an SSN (000-00-0000). When you list a number, please separate the nine digits properly to show the kind of number.

Special Reporting Situations for Form W-2
Adoption benefits. Amounts paid or expenses incurred by an employer for qualified adoption expenses under an adoption assistance program are not subject to income tax withholding and are not reportable in box 1. However, these amounts (including adoption benefits paid from a section 125 (cafeteria) plan, but not including adoption benefits forfeited from a cafeteria plan) are subject to social security, Medicare, and railroad retirement taxes and must be reported in boxes 3 and 5. Also, the total amount must be reported in box 13 with code T. See Notice 97-9, 1997-1 C.B. 365, for more information on adoption benefits. Advise your employees to get Pub. 968, Tax Benefits for Adoption.

Agent reporting. Generally, an agent that has an approved Form(s) 2678, Employer Appointment of Agent, should enter his or her name as the employer in box c of Form W-2, and file one Form W-2. However, if the agent (1) is acting as an agent for two or more employers or is an employer and is acting as an agent for another employer and (2) pays social security wages in excess of the wage base to an individual, special reporting for payments to that individual is needed. If an agent meets the requirements in items (1) and (2) above, the agent must file separate Forms W-2 reflecting the wages paid by each employer. On each Form W-2 filed as an agent, the agent should enter the following in box c of Form W-2: (Name of agent) Agent for (name of employer) Address of agent. Each Form W-2 should reflect the EIN of the agent in box b. In addition, the employer's EIN should be shown in box h of Form W-3. Get Pub. 1271 (Rev. Proc. 70-6) for procedures to be followed in applying to be an agent. Alien residence status change. If your employee is given a new social security card following an adjustment to his or her alien residence status that shows a different name or SSN, correct your records for 1999 and show the new information on the 1999 Form W-2. If you filed Form W-2 for the same employee in prior years under the old name and SSN, file Form W-2c, Corrected Wage and Tax Statement, to correct the name and number. (See Corrections below.) Use a separate Form W-2c to correct each prior year. Advise the employee to contact the local SSA office no earlier than 9 months after you file Form W-2c to be sure his or her records are updated. Clergy and religious workers. For certain members of the clergy and religious workers who are not subject to social security tax as employees, boxes 3 and 5 of Form W-2 should be left blank. For information on the rules that apply to ministers and certain other religious workers, see Pub. 517, Social Security and Other Information for Members of the Clergy and Religious Workers, and section 4 (Religious Exemptions) of Pub. 15-A. Corrections. Use Form W-2c, Corrected Wage and Tax Statement, to correct errors (such as incorrect name, SSN, or amount) on a previously filed Form W-2. Send Form W-3c, Transmittal of Corrected Wage and Tax Statements, with Forms W-2c unless you are only correcting a name or SSN. However, see Employee's incorrect address on Form W-2 below, for information on correcting an employee's address. Use Form W-3c to correct a previously filed Form W-3. If you discover an error on Form W-2 after you issue it to your employee but before you send it to the SSA, mark the "Void" box at the top of the form on Copy A. Prepare a new Copy A with the correct information, and send it to the SSA. Write "Corrected" on the new employee's copies (B, C, and 2), and furnish them to the employee. (If the "Void" Form W-2 is on a page with a correct Form W-2, send the entire page to the SSA. The "Void" form will not be processed.) If you are making an adjustment in 1999 to correct social security and Medicare taxes for a prior year, you must file Form 941c, Supporting Statement To Correct Information, with your Form 941, Employer's Quarterly Federal Tax Return, or Form 943, Employer's Annual Tax Return for Agricultural Employees, in the return period you find the error, and issue the employee a Form W-2c for the prior year. If you are correcting social security or Medicare wages or tips, also file the entire first page of Forms W-2c with Form W-3c with the SSA to correct the social security records. Employee's incorrect address on Form W-2. If you filed a Form W-2 with the SSA showing an incorrect address for the employee but all other information on the Form W-2 is correct, do not file Form W-2c with the SSA merely to correct the address. However, if the address was incorrect on the Form W-2 furnished to the employee, you must do one of the following:

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Issue a new Form W-2 containing all correct information, including the new address. Indicate "REISSUED STATEMENT" on the new copies. Do not send Copy A to the SSA. Issue a Form W-2c to the employee showing the correct address in box b. Do not send Copy A to the SSA. Reissue Form W-2 with the incorrect address to the employee in an envelope showing the correct address. Deceased employee's wages. If an employee dies during the year, you must report the accrued wages, vacation pay, and other compensation paid after the date of death. If you made the payment in the same year the employee died, you must withhold social security and Medicare taxes on the payment and report the payment on the employee's Form W-2 only as social security and Medicare wages to ensure proper social security and Medicare credit is received. On the employee's Form W-2, show the payment as social security wages (box 3) and Medicare wages and tips (box 5) and the social security and Medicare taxes withheld in boxes 4 and 6. Do not show the payment in box 1. If you made the payment after the year of death, do not report it on Form W-2, and do not withhold social security and Medicare taxes. Whether the payment is made in the year of death or after the year of death, you also must report it in box 3 of Form 1099-MISC, Miscellaneous Income, for the payment to the estate or beneficiary. Use the name and taxpayer identification number (TIN) of the payment recipient on Form 1099-MISC. Example. Before Employee A's death on June 15, 1999, A was employed by Employer X and received $10,000 in wages on which Federal income tax of $1,500 was withheld. When A died, X owed A $2,000 in wages and $1,000 in accrued vacation pay. The total of $3,000 (less the social security and Medicare taxes withheld) was paid to A's estate on July 20, 1999. Because X made the payment during the year of death, X must withhold social security and Medicare taxes on the $3,000 payment and must complete Form W-2 as follows: Box d ­ Employee A's SSN Box e ­ Employee A's name Box f ­ Employee A's address Box 1 ­ 10000.00 (does not include the $3,000 accrued wages and vacation pay) Box 2 ­ 1500.00 Box 3 ­ 13000.00 (includes the $3,000 accrued wages and vacation pay) Box 4 ­ 806.00 (6.2% of the amount in box 3) Box 5 ­ 13000.00 (includes the $3,000 accrued wages and vacation pay) Box 6 ­ 188.50 (1.45% of the amount in box 5) Box 15 ­ Mark the "Deceased" box

Employer X also must complete Form 1099-MISC as follows: Boxes for: Recipient's name, address, and TIN -- The estate's name, address, and TIN Box 3 ­ 3000.00 (Even though amounts were withheld for social security and Medicare taxes, the gross amount is reported here.) If Employer X made the payment after the year of death, the $3,000 would not be subject to social security and Medicare taxes and would not be shown on Form W-2. However, the employer would still file Form 1099-MISC. Educational assistance programs. The $5,250 exclusion for employer-provided educational assistance applies to courses starting before June 1, 2000. However, the exclusion does not apply to graduate courses that started after June 30,1996. Generally, a course starts on the first regular day of class. See Pub. 508, Educational Expenses, and Pub. 15-A, for more information. Also see the instructions for box 1 on page 7. Employee business expense reimbursements. Reimbursements to employees for business expenses must be reported as follows: Generally, payments made under an accountable plan are excluded from the employee's gross income and are not


reported on Form W-2. However, if you pay a per diem or mileage allowance and the amount paid exceeds the amount treated as substantiated under IRS rules, you must report as wages on Form W-2 the amount in excess of the amount treated as substantiated. The excess amount is subject to income tax withholding and social security and Medicare taxes. Report the amount treated as substantiated (i.e., the nontaxable portion) in box 13 using code L. Payments made under a nonaccountable plan are reported as wages on Form W-2 and are subject to income tax withholding and social security and Medicare taxes. For more information on accountable plans, nonaccountable plans, amounts treated as substantiated under a per diem or mileage allowance, the standard mileage rate, the per diem substantiation method, and the high-low substantiation method, see Pub. 463, Travel, Entertainment, Gift, and Car Expenses; Pub. 1542, Per Diem Rates; and Circular E (Pub. 15). Employee's taxes paid by employer. If you paid your employee's share of social security and Medicare taxes rather than deducting them from the employee's wages, you must include the amount of the payments as wages, subject to income tax withholding and social security, Medicare, and Federal unemployment (FUTA) taxes. This increase in your employee's wages for your payment of the employee's social security and Medicare taxes is also subject to employee social security and Medicare taxes. This again increases the amount of the additional taxes you must pay. The amount to include as wages is determined by using the formula contained in the discussion of Employee's Portion of Taxes Paid by Employer in Pub. 15-A. Note: This does not apply to household and agricultural employers. If you pay a household or agricultural employee's social security and Medicare taxes, you must include these payments in the employee's wages. However, the wage increase due to the tax payments is not subject to social security, Medicare, or FUTA taxes as discussed above. Fringe benefits. Include all taxable fringe benefits in box 1 as wages, tips, and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Although not required, you may include the total value of fringe benefits in box 12, or on a separate statement, or on a separate Form W-2. However, if you provided your employee a vehicle and included 100% of its annual lease value in the employee's income, you must separately report this value to the employee in box 12 or on a separate statement. The employee can then figure the value of any business use of the vehicle and report it on Form 2106, Employee Business Expenses. See Fringe Benefits in Pub. 535, Business Expenses. Note: If you used the commuting rule or the vehicle cents-per-mile rule to value the personal use of the vehicle, you cannot include 100% of the value of the use of the vehicle in the employee's income. See Pub. 535. Golden parachute payments. Include these payments in boxes 1, 3, and 5. Withhold income, social security, and Medicare taxes as usual and report them in boxes 2, 4, and 6, respectively. Excess parachute payments are also subject to a 20% excise tax. If the excess payments are considered wages, withhold the 20% excise tax and include it in box 2 as income tax withheld. Also report it in box 13 with code K. For additional information, see sections 280G and 4999. Government employers. Federal, state, and local agencies have two options for reporting their employees' wages that are subject only to Medicare taxes for part of the year and full social security and Medicare taxes for part of the year. Option one (which the SSA prefers) is to file a single Form W-2 with the Medicare-only wages and the social security and Medicare wages combined. The Form W-3 must have the "941" box marked in box b. Option two is to file two Forms W-2 and two Forms W-3. File one Form W-2 for wages subject to Medicare tax only. Be sure to check the "Medicare govt. emp." box in box b of Form W-3. File the second Form W-2 for wages subject to both social security and Medicare taxes with the "941" box checked in

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box b of Form W-3. Group-term life insurance. If you paid for group-term life insurance in excess of $50,000 for an employee or a former employee, you must report the amount determined by using the table in section 5 of Pub.15-A in boxes 1, 3, and 5 of Form W-2. Also, show the amount in box 13 with code C. For employees, you must withhold social security and Medicare taxes, but not income tax. Former employees must pay the employee part of social security and Medicare taxes on premiums for group-term life insurance over $50,000 on Form 1040. You are not required to collect those taxes. However, you must report the uncollected social security tax with code M and the uncollected Medicare tax with code N in box 13 of Form W-2. Lost Form W-2--reissued statement. If an employee loses a Form W-2, write "REISSUED STATEMENT" on the new copy, but do not send Copy A of the reissued Form W-2 to the SSA. You may give a reissued Form W-2 to an employee on the official IRS form or on an acceptable substitute form (see Substitute Forms on page 1). Medical savings account (MSA). An employer's contribution to an employee's MSA is not subject to income tax withholding, or social security, Medicare, or railroad retirement taxes, if it is reasonable to believe at the time of the payment that the contribution will be excludable from the employee's income. If it is not reasonable to believe at the time of payment that the contribution will be excludable from the employee's income, employer contributions are subject to income tax withholding and social security and Medicare taxes (or railroad retirement tax, if applicable) and must be reported in boxes 1, 3, and 5. You must report all employer contributions to an MSA in box 13 of Form W-2 with Code R. Employer contributions to an MSA that are not excludable from the income of the employee also must be reported in box 1. An employee's contributions to an MSA are includible in income as wages and are subject to income tax withholding and social security and Medicare taxes (or railroad retirement tax, if applicable). Employee contributions are deductible, within limits, on the employee's Form 1040. See Notice 96-53, 1996-2 C.B. 219 and Pub. 969, Medical Savings Accounts (MSAs), for more information. Moving expenses. For 1998 and later years, Form 4782, Employee Moving Expense Information, was eliminated. Employers are no longer required to provide this form to employees. However, employers may continue providing similar information to employees in any format they wish if they deem it helpful to employees. Report moving expenses as follows: Qualified moving expenses an employer pays to a third party on behalf of the employee (e.g., to a moving company) and services that an employer furnishes in kind to an employee are not reported on Form W-2. Qualified moving expense reimbursements paid directly to an employee by an employer are reported only in box 13 with code P. Nonqualified moving expense reimbursements are reported in box 1. These amounts are subject to income tax withholding and social security and Medicare taxes. Railroad employers. Railroad employers must file Form W-2 to report their employees' wages and income tax withholding. Reporting on magnetic media may be required; see Magnetic media reporting on page 2. If an employee is covered by social security and Medicare, complete boxes 3, 4, 5, 6, and 7 on Form W-2 to show the social security and Medicare wages and the amounts withheld for social security and Medicare taxes. The Form W-3 used to transmit these Forms W-2 must have the "941" box marked in box b. You must report the Tier 1 and Tier 2 taxes withheld in box 14 of Form W-2. Label them "Tier 1 tax" and "Tier 2 tax." Boxes 3, 4, 5, 6, and 7 apply only to covered social security and Medicare employees and are not to be used to report railroad

retirement wages and taxes. The Form W-3 used to transmit these Forms W-2 must have the "CT-1" box checked in box b. Repayments. If an employee repays you for wages received in error, do not offset the repayments against current year wages unless the repayments are for amounts received in error in the current year. Repayments made in the current year, but related to a prior year or years, require special tax treatment by employees in some cases. You may advise the employee of