Two new codes were introduced to the W-2 as part of the Tax Cuts & Jobs Act (TCJA) that Congress passed in December 2017.
For 2018 this will NOT be supported by the Online Payroll Offerings.
This is supported by Desktop Payroll as of the December 2018 Payroll Release. If an employee chooses to elect for the deferral of the qualified equity grants, they should use code HH to report the deferral. The IRS indicates they will need to pay all Social Security, Medicare and FUTA taxes at the time of the deferral. The only tax that is deferred is Income Tax.
When the deferral period is over, they will need to report the Income using code GG, at which time the Income Tax will be required to be paid.
How to Update tax settings:
Important: IRS just recently published guidelines that are different from the one we previously released. We since have published a new update to go in line with IRS.
To make sure your calculation is correct, follow the steps below:
Update settings in Payroll Setup
- Select Employees menu, then choose Payroll Setup.
- Select Company Setup then Employee Benefits.
- Choose Miscellaneous and select GG under Miscellaneous Item.
- Choose Edit... then Next.
- Select 'Use standard tax settings' and choose Next then Finish.
Update settings in Edit Payroll Item:
- Select Lists menu, then Payroll Item List.
- Right-click on the item named GG and select Edit Payroll Item.
- Continuously select Next till you get to the Taxes page.
- Select Default, then choose Next.
- Select Next, then Finish.
About code GG
Code GG is an addition item for reporting Qualified Equity Grants as defined in Section 83i of the Internal Revenue Code (IRC).
Effect on Federal forms:
- Sec 83i Qual. Equity 940: Included in wages (line 3) then included in line 4 to remove from the calculation.
- Sec 83i Qual. Equity 941: Included in wages (lines 2)
- Sec 83i Qual. Equity 944: Included in wages (lines 1)
- Sec 83i Qual. Equity W-2: Increases wages (boxes 1); reported in box 12 code GG
About code HH
Code HH is a deduction item for reporting aggregate deferrals under section 83i elections as of the close of the calendar year.
This tax tracking type should only be used to track the amount of income deferred from qualified equity grants as defined in Section 83i of the IRC. It should be associated with a deduction payroll item.
Effect on Federal forms:
- Sec 83i Tax Deferral 940: Included in wages (line 3)
- Sec 83i Tax Deferral 941: Included in wages (line 5a, 5c)
- Sec 83i Tax Deferral 944: Included in wages (lines 4a, 4c)
- Sec 83i Tax Deferral W2: Increases wages (boxes 3, 5) Reported in box 12 code HH
You can see IRS NOTICE 2018-97 for questions about taxability and reporting information.