IncomeandWithholdingMatchingfor

FraudProtection

WisconsinDepartmentofRevenue

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ProjectObjectives

• Increaseto100%systematicmatchingofindividualincometax(IIT)returnsagainstpayersubmittedW-2s/1099sinreal-time to:

–Reducewithholdingfraud

– Identifyreportingerrors

– Improveemployercompliance

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ProjectObjectives

• ImprovedataqualityofW-2s&1099ssubmittedelectronically

• StoreallW-2s&1099sinsameplaceforeasierquerying

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MultipleSolutions

• Technology: hardware,integratedtaxprocessingsystem&externalapplications

• Operations:policies,statutorypenalty,andreportingrequirements

• Outreach:employers/payers,payrollserviceproviders,taxpractitioners&individualincometaxpayers

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Background

• W-2s/1099swithwithholdingdueJanuary31st

• 1099swithNOwithholdingdueFebruary28th

• 148,504activewithholdingaccounts

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Background

• W-2s&1099smustbefiledelectronicallyifsending50ormore

• MatchingwasdonemanuallytoasubsetofW-2s/1099sreceivedbasedoninternalbusinessrules

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Background- Paper

• Previously,DORacceptedpaperW-2s/1099sinavarietyofformats

• W-2s/1099swerestoredforimageonly

• Dataregardingnumberfiledwasfromatransmittalpagepreparedbythepayer

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Background– Electronic

• ElectronicsubmissionmethodswereSSAPDFfiles,EFW-2format,andMyTaxAccount

• W-2s/1099swerestoredinvariousdatastores

• Novalidationwasdoneasfileswerereceivedtoensuredataquality

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MatchingNeeds• DORhadtoenforcereportingrequirementstohelpcombatfraud

• DORhadtocapturethedatafromthesourcedocumentsratherthanrelyonpayersuppliedsummary

• Dataqualityofemployer/payersubmittedinformationreturnsMUSTimprove

• InformationreturndatahadtobereadilyavailabletoqueryduringIITreturnprocessing

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Funding• Received$7millionin2013-2015biennialbudgetforfraudprevention

• Fundingwasusedfor:– Highspeedscanners&softwaretodatacapturepaperinformationreturns

– FraudmanagercomponentinGenTax (usedforidentityverification,initially)

– Additionalstaffforfraudprevention

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TechnologySolutions

• CreatedstandarddatastoresforW-2s&1099swithinGenTax datawarehouse,regardlessoffilingmethod

• Implementednewscanners&scanningsoftwaretocapturedatafrompaper-filedinformationreturnsandloadintostandarddatastore

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TechnologySolutions• DevelopedvalidationprocessestoensureFEIN,LegalName&WisconsinTaxAccountNumber(WTN)matchedwithholdingaccount– Rejecte-filedW-2s&1099smismatchesforfilertoselfcorrectandresubmit

– Suspendpaper-filedW-2s&1099sforfilertocorrectmismatchesbeforeloadingintodatawarehouse

• FEINfromIITreturnsusedtoquerydatastoresforwage/withholdingdata

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OperationalSolutions

• Implementedstandardspecificationsfor"stateuse"areasofW-2s&1099storequire15-digitWTNinstateaccountnumberfield

• Created"dummy"WTNforpayerswhodidnothavewithholdingaccount(ex:agriculture,domestichelp)

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Outreach– ReportingRequirements

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Outreach• PublishedguidanceforpaperfiledW-2s&1099s-DORwebsite,listservarticles,taxbulletins,presentations,MyTaxAccountnotices,etc.

• Workedwithpayrollserviceproviderstoensureproperfiling

• Sentletterstoemployers/payersfiling50ormoreinformationreturnsonpaper;muste-file

• Promotedonlinelookup&dataexchangetoverifyFEIN,LegalName&WTN

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OutreachSolutions• SetnewexpectationsforIITtaxpayers;cantake8-12weekstoprocessreturn

• Communicationsteamre-brandedrefundandfraudmessages

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OutreachSolutions

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EarlyLessonsLearned

• Additionaltemporarystaffhiredandworkreprioritizedinmailroom,scanning,datacapture&processingareastogiveW-2stoppriorityinlateJanuary&earlyFebruary

• Dedicatedgroupofcustomerserviceemployeestosupporte-filesubmissionsthatwererejected

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TechnologySolutions- Fraud

• In2016,95%ofW-2swereinoursystembytheendofFebruary– timetousethedata!

• In2017,creatednewactionto"hold"IITreturnsclaimingwithholdingifnoemployer/payersubmittedW-2or1099toverify

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TechnologySolutions- Fraud

• HeldreturnsareevaluatednightlyagainstnewlyfiledW-2s&1099sandprocessedifmatchisfound

• IfreturnsareheldfordefinedtimeperiodwithnoW-2s&1099sfiled,workitemsarecreatedtoreviewreturnmanually– StaffaskIITtaxpayertoprovideW-2s,1099sandrelevantpaystubstosupportwithholdingbeingclaimed

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Results• 98.2%ofinformationreturnswereonoursystembyMarch1,2017andavailableformatching

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YEAR E-FiledW-2s

PaperW-2s

E-Filed1099s

Paper1099s

Total

2014 4,210,395 48,803 1,048,744 101,630 5,409,572

2015 4,218,228 450,031 1,055,655 317,209 6,041,123

2016 4,554,933 470,721 1,165,236 332,705 6,523,595

2017(as of3/1)

4,777,241 306,839 1,122,310 219,648 6,426,038

TechnologySolution–IncomeReconciliation• Example:Taxpayerclaimed$4,600ofwithholding,butemployer-submittedW-2showedonly$3,479.91

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Results– 2017Season• 6,193IITreturnsadjustedforwage/withholdingmatchasof6/1/2017and918returnsstillsuspended

• $9.8millioninrefundadjustments

• Theseadjustmentsareinadditiontotheapproximately$11millionwestopeachyearbasedonfraudanalytics

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Results– 2017Season• AverageIITreturnprocessingtimeDECREASED– 4.7daysin2017

– 5.0daysin2016

• MatchingprojectdidNOTdelayoverallreturnprocessingtime

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Results– 2017Season• 7,650employers/payersfailedtosubmitW-2sor1099sandwillbepenalized

• 7,861employers/payersfailedtofiletheirannualwithholdingreconciliation(WT-7)ANDW-2sor1099s– SomebusinessesmayhaveceasedwithoutnotifyingDOR

– FollowupisbeingdonetorequestW-2sor1099sANDpenalize,ifappropriate

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NextSteps

• AdoptMeF schemaforW-2&1099filingtoimproverejectionrules

• Potentiallegislationtoreducee-filingthresholdfrom50to10forW-2s/1099s

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NextSteps

• Implementingpenaltyforemployers/payerswhofailtosubmitW-2s/1099s

• Followingupwithemployers/payerswhoarenotsubmittingcorrectly

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ContactInformationDianeHardt

AdministratorofIncome,Sales&ExciseTaxDivision608/266-6798diane.hardt@wisconsin.gov

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