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IRS.gov Website
Publication 957
taxmap/pubs/p957-001.htm#en_us_publink1000100624

2. Special Wage Payments(p4)

rule
A special wage payment (SWP) is an amount paid by an employer to an employee (or former employee) for services performed in a prior year. Employers should report to the SSA special wage payments made to employees and former employees who are recipients of social security retirement benefits. Special wage payments made to a retired employee receiving social security or to an employee who continues to work while receiving social security benefits may reduce the benefits the individual receives if not reported to the SSA. Special wage payments may include (but are not limited to):
Note.Payments made after retirement that are part of the normal payroll cycle should not be routinely reported as special wage payments.
taxmap/pubs/p957-001.htm#en_us_publink1000100626

Earnings Test.(p4)

rule
Benefits paid to a social security beneficiary under full retirement age may be reduced if the beneficiary continues to work. The SSA uses the information in boxes 1, 3, and 5 of Form W-2 to determine the beneficiary's current year earnings. Special wage payments, which are for services performed in a prior year, will increase the current year earnings on Form W-2, which also may result in a reduction in the beneficiary's benefits. If a benefit is reduced because of a special wage payment, the beneficiary must get documentation from the employer before the SSA can restore the deducted portion. Therefore, employer reports of special wage payments help prevent incorrect benefit reductions.
taxmap/pubs/p957-001.htm#en_us_publink1000100627

Reporting Special Wage Payments(p5)

rule
Employers must report special wage payments for income tax purposes and social security and Medicare taxes in the year received. Report income, social security, and/or Medicare taxes for special wage payments on Form W-2.
EIC
See Nonqualified Deferred Compensation and Section 457 Plans, later, for reporting nonqualified deferred compensation plan deferrals and payments on Form W-2.
In addition, report to the SSA special wage payments made during the reporting year to retired employees and employees who continue to work while receiving social security benefits. Submit reports after the close of the tax year. To avoid delays in processing, submit reports in time to reach the SSA by April 1. Use one of the following reporting methods.
taxmap/pubs/p957-001.htm#en_us_publink100087402

Electronic reporting.(p5)

rule
Special wage payment files can be sent electronically by logging onto Business Services Online (BSO) via the socialsecurity.gov website. BSO enables organizations and authorized individuals to conduct business with and submit confidential information to the Social Security Administration. You must register to use this website. The web address is www.socialsecurity.gov/bso/bsowelcome.htm.
Use the specifications and record layout shown in
Table 2, later. Only one file at a time may be submitted. If your file is large (>10MB), or you have a slow internet connection, the transmission will be faster if the file is zipped. A zipped file contains a file that has been compressed to reduce its file size. WinZip and PKZIP are examples of acceptable compression packages.
Electronic submissions not meeting the specifications in Table 2 will be rejected.
taxmap/pubs/p957-001.htm#en_us_publink1000100630

Paper listing.(p5)

rule
A paper listing can be used to report special wage payments to several employees. Use the format shown in Table 3, later. Submit paper listings to the local SSA office nearest your place of business. Visit www.socialsecurity.gov/locator to find a Social Security office near you.
taxmap/pubs/p957-001.htm#en_us_publink1000100631

Form SSA-131.(p5)

rule
Use Form SSA-131 to report special wage payments made to an employee. Also use this form to report nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in box 11 of Form W-2.
taxmap/pubs/p957-001.htm#en_us_publink1000100632
Instructions for Form SSA–131
 EMPLOYER INSTRUCTIONS FOR COMPLETING SPECIAL WAGE PAYMENT FORM
1.Provide the EIN that was used or will be used to report the employee's wages on the Form W-2.
2.Enter the date the employee retired. Enter "Not Retired" if the employee has not retired.
3.Enter the date that the employee last performed services; was not expected to return to work; and was not subject to recall to render additional services. This date should be the same as or earlier than the date in item "2". Enter "Not Retired" if the employee has not retired.
4.Enter the wages that were paid to the employee in the tax year that were for services that were performed in years prior to the tax year or that were paid on account of retirement.
Examples (not all inclusive) of payments to be included:
  • Payments in lieu of vacation that were earned in a year prior to the tax year.
  • Accumulated sick payments which were paid in a lump sum based on "retirement" as the sole condition of payment.
  • Accumulated sick payments paid at or after the date in item 3, which were earned in a year prior to the tax year.
  • Payments "on account of retirement"–dismissal, severance or termination pay paid because of retirement.
  • Bonuses which are paid pursuant to a prior contract, agreement or promise causing the employee to expect such payments regularly; or announced to induce the employee to work more steadily, rapidly or efficiently or to remain with the employer.
  • Stock Options.
 Do not include in item "4" payments:
  • For annual, sick, holiday, or vacation pay if used (absence from work) prior to the date of retirement (earlier of items "2" or "3").
  • That were reported or will be reported under "Nonqualified Plans" on the Form W-2.
  • That were deducted from the employee's wages and paid to a deferred compensation plan (e.g., 401k).
  • Employees health and dental plan benefits (non-covered/non-taxable for Social Security Wages).
  • Bonuses earned and paid in the tax year.
5.Check whether payments listed in item 4 will be made for years after the tax year. If yes, please show the amounts and years in which these will be paid, if known.
6. Nonqualified deferred compensation and section 457 plans only. If you were unable to report nonqualified deferred compensation or section 457 plan payments and deferrals (contributions) on Form W-2 because both payments and deferrals occurred during the year, show the amount of wages earned by the employee during the tax year. Generally, the wages earned will be the compensation reported in block 1 of Form W-2 less payments from a nonqualified deferred compensation (or 457) plan, but including any amounts deferred under the plan during the tax year (See IRS Publication 957).
Paperwork/Privacy Act Notice: This report is authorized by regulation 20 CFR 404.702. The information that you provide will be used in making a determination regarding the amount of Social Security benefits payable to the above named individual. While your response is voluntary, if you do not respond we may not be able to make a correct determination regarding the amount of Social Security benefits payable to the above named individual for the year in question.
We may also use the information you give us when we match records by computer. Matching programs compare our records with those of other Federal, State, or local government agencies. Many agencies may use matching programs to find or prove that a person qualifies for benefits paid by the Federal Government. The law allows us to do this even if you do not agree to it. Explanations about these and other reasons why information you provide us may be used or given out are available in Social Security Offices. If you want to learn more about this, contact any Social Security Office.
The Paperwork Reduction Act: This information collection meets the clearance requirements of 44 U.S.C. §3507, as amended by Section 2 of the Paperwork Reduction Act of 1995. You are not required to answer these questions unless we display a valid Office of Management and Budget control number. We estimate that it will take you about 20 minutes to read the instructions, gather the necessary facts, and answer the questions.
Form SSA-131 (8-2001) EF (06-2002)
Submit Form SSA-131 to the SSA office nearest your place of business. Or, the employee can submit it to the SSA office handling the claim. You or the employee must submit this form before the SSA can exclude the special wage payments for purposes of the earnings test. If reporting on more than one employee, complete a separate Form SSA-131 for each employee or use the paper listing format (except for reporting nonqualified and section 457 plan deferrals and payments) in Table 3.
EIC
Do not report payments from nonqualified deferred compensation or section 457 plans that were reported in box 11 of Form W-2. Use Form SSA-131 if deferrals to and payments from nonqualified or section 457 plans occurred during the tax year.
taxmap/pubs/p957-001.htm#en_us_publink1000100634

Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments(p7)

rule
A nonstatutory (nonqualified) option to purchase stock which is exercised in a year after the year in which the option was earned is a special wage payment. It should not count for the social security earnings test. Nonstatutory (nonqualified) options exercised as special wage payments by retired employees or employees who continue to work while receiving social security benefits should be reported by employers using the above reporting methods.
taxmap/pubs/p957-001.htm#en_us_publink1000100635

Nonqualified Deferred Compensation and Section 457 Plans(p8)

rule
A nonqualified deferred compensation plan is a plan or arrangement established and maintained by an employer for one or more of its employees that provides for the deferral of compensation, but does not meet the requirements for a tax-qualified deferred compensation plan. For social security and Medicare purposes, deferred compensation plans for employees of state and local governments (section 457 plans) are treated the same as nonqualified plans. Nonqualified and section 457 plans are reported differently than other special wage payments. See Reporting Amounts Deferred to Nonqualified and Section 457 Plans below for specific instructions.
taxmap/pubs/p957-001.htm#en_us_publink1000100636

Reporting Amounts Deferred to Nonqualified and Section 457 Plans(p8)

rule
Generally, when the related services are performed, nonqualified deferred compensation is subject to social security and Medicare tax when deferred. However, if nonqualified and section 457 plans contain provisions that delay the employee's right to receive payments from the plan, a period of substantial risk of forfeiture exists. The plans' deferrals, or contributions, are not subject to social security and Medicare taxes until the period of substantial risk of forfeiture ends.
taxmap/pubs/p957-001.htm#en_us_publink1000100637

No risk of forfeiture.(p8)

rule
If there is no risk of forfeiture, report wage amounts deferred to a nonqualified deferred compensation or section 457 plan in box 3 (up to the wage base maximum) and/or box 5 of Form W-2.
taxmap/pubs/p957-001.htm#en_us_publink1000100638

Example.(p8)

Company X's nonqualified deferred compensation plan allows the deferral of up to $20,000 of employee salaries each year. The plan has no risk of forfeiture. In 2012, Employee A defers $20,000 to the plan from a total salary of $200,000.
Form W-2 CompletionAmount
Box 1$200,000
Box 3*110,100
Box 5200,000
*Wage base maximum for tax year 2012
taxmap/pubs/p957-001.htm#en_us_publink1000100639

Risk of forfeiture lapses before retirement.(p8)

rule
If the substantial risk of forfeiture lapses before the employee retires, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. The accumulated deferrals are reported along with any other social security and Medicare wages earned during the year.
Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. If the employee continues working, future deferrals are social security and Medicare wages when they are earned.
EIC
Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services.
taxmap/pubs/p957-001.htm#en_us_publink1000100641

Risk of forfeiture lapses at retirement.(p8)

rule
When an employee's right to a payment is contingent upon working until retirement, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, as social security and/or Medicare wages in the year of retirement. Add the amount to other wages paid in that year, and enter in box 3 (up to the wage base maximum) and/or box 5 of Form W-2.
Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture.
EIC
Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services.
taxmap/pubs/p957-001.htm#en_us_publink1000100643

Example—risk of forfeiture.(p8)

At the end of the risk-of-forfeiture period for Company Y's nonqualified deferred compensation plan, Employee B's accumulated deferrals, plus interest earned by the plan, are $120,000, not including B's $20,000 deferral for this year. B's wages, including this year's deferred amount, are $80,000.
Form W-2 CompletionAmount
Box 1$60,000
Box 3*110,100
Box 5200,000
Box 11120,000
*Wage base maximum for tax year 2012
taxmap/pubs/p957-001.htm#en_us_publink1000100644

Reporting Payments From Nonqualified and Nongovernmental Section 457 Plans(p8)

rule
When an employee or former employee retires and begins receiving payments (distributions) from a nonqualified or nongovernmental section 457 plan, report the payments in boxes 1 and 11 of Form W-2. Report payments (distributions) from a governmental section 457 plan on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
taxmap/pubs/p957-001.htm#en_us_publink1000100645

Example.(p8)

Employee D retired from the XYZ company and began receiving social security benefits. XYZ paid D a $12,000 bonus upon retirement for sales made in a prior year, and D received $25,000 in payments from XYZ's nonqualified deferred compensation plan. In addition, D agreed to continue performing services for XYZ, but on a part-time basis for wages of $15,000 per year. D made no deferrals to the nonqualified plan this year.
Form W-2 CompletionAmount
Box 1$52,000
Box 327,000
Box 527,000
Box 1125,000
Report the $12,000 bonus to the SSA using electronic reporting, a paper listing, or Form SSA-131. For more information, see Reporting Special Wage Payments, earlier.
taxmap/pubs/p957-001.htm#en_us_publink1000100646

Reporting Payments and Deferrals in the Same Year(p9)

rule
Do not complete box 11 when payments (distributions) are made from a nonqualified plan and deferrals are reported in boxes 3 and/or 5 of Form W-2 (including current year deferrals). Report to the SSA on Form SSA-131 the total amount the employee earned during the tax year. Normally, the amount earned is the amount reported in box 1 of Form W-2 less payments from a nonqualified or section 457 plan, but including any amounts deferred under the plan during the tax year. See Form SSA-131 and its instructions, earlier.
taxmap/pubs/p957-001.htm#en_us_publink1000100647

Example.(p9)

Employee K retired this year from Company XYZ and began receiving social security benefits. During the year he earned wages of $50,000 and deferred $35,000 of the wages into the company's nonqualified deferred compensation plan. K also received $75,000 in payments from the company's nonqualified plan.
Form W-2 CompletionAmount
Special Wage Payment$75,000
Wages50,000
Minus: deferral35,000
Total reported in Box 1$90,000
  
Wages including deferral reported in
Boxes 3 and 5
$50,000
  
Leave Box 11 blank. File Form SSA-131 -0-
  
Form SSA-131 Completion
Amount from Box 1 of Form W-2 $90,000
Minus: payments from a nonqualified plan75,000
Plus: amounts deferred into the plan during the year35,000
Total wages earned for purposes of Form SSA-131 (item 6)$50,000