Simplified Tax and Wage Reporting System (STAWRS)
ANNUAL REPORT
July 1995 - June 1996

Purpose and Background 

The STAWRS project was initiated for the purposes of reducing the tax and wage reporting burden on employers while improving the efficiency and effectiveness of Federal and State agency operations. This project was begun in response to a grassroots plea in 1990 for simplification and burden reduction from the business community.

The White House endorsed STAWRS on June 9, 1995 as part of the second round of re-inventing government initiatives (called REGO II). In addition, STAWRS was endorsed by Vice-President Gore's first "re-inventing government"report in 1993. Initial presidential endorsement of STAWRS was given in May 1992, in recognition of Small Business Week. STAWRS has broad support among the Federal Agencies involved, Internal Revenue Service (IRS), Social Security Administration (SSA), Department of Labor (DOL), Office of Management and Budget (OMB) and Department of Treasury. Many state agencies are also supporting STAWRS because they too have a significant stake in the success of this effort.

2. Scope and Goals

The project addresses the broad spectrum of:

• Federal and State employment tax withholding, employment tax and wage information, and
  
  
• Federal and State unemployment insurance tax and wage information.

• Reduce the tax and wage reporting burden on the Nation's 6.2 million employers to realize an annual savings of up to $1 billion, and
  
  
• Improve the effectiveness and efficiency of government operations at both Federal and State levels through new reporting processes and procedures.

There are several areas which employers have indicated are causing a great deal of burden. Paramount among these is reducing the complexity and diversity of tax and wage reporting requirements, rules and procedures with which employers must comply. Additionally, tracking requirements, record keeping, preparing submissions, and responding to inquiries all require a significant amount of the employer's time. STAWRS will strive to simplify requirements, streamline and improve access to information and customer service, and develop systems and procedures which will allow single-point filing.

STAWRS will include services tailored to a wide range of employers' needs: manual or automated filing, new or experienced filers, large or small businesses. (Note that over 80% of employers have fewer than ten employees.) STAWRS services will be provided with protection of employer and employee privacy.

3. Objectives

To achieve the goals STAWRS has an overall strategy which is comprised of three major objectives:

• Simplified requirements
  
  The harmonization of laws, regulations, instructions, procedures, data content of forms, and submission schedules are expected to have the greatest impact on reducing employer burden. Depending on the jurisdictions that participate in STAWRS and the degree of adoption of harmonized laws and regulations, employers could see a significant reduction in time-consuming computations that they need to make, the records that they must keep, and the data that they must submit to the variety of agencies with which they do business. Such simplification efforts are also likely to reduce the number of filing errors and follow-up government contacts.
  
  
• Streamlined Customer Service
  
  Streamlined and convenient tax assistance capable of providing information and answers to employers' questions across participating agencies will be provided. This assistance will be available from tax assistors via telephone and from automated systems accessible via personal computer connected to networks. Issues requiring access to tax assistors at specific agencies will be immediately forwarded to that agency for response.
  
  
• Single-point Filing
  
  Service will be provided to permit employers the ability to file employment-related tax returns to one location/processing agent. Though emphasis will be placed on electronic filing, single-point magnetic and paper filing are also envisioned. Electronic filing will be accessible from an employer's location or possibly from public access locations.

• Shared resources to support customer assistance
  
  These shared resources, both systems and staff via cost-sharing, will carry out many of today's routine functions. The resource sharing is not envisioned to impede the important relationship between employer and agency.
  
  
• Reliable, timely and accurate tax reporting information in machine-processable form to the participating agencies (i.e., Internet, Bulletin Board System, Value Added Networks (VANs))
  
  
• Through enhanced filing methods, simplification of forms and instructions, and harmonization of laws and regulations, STAWRS will help develop processes to reduce employer error and increase timely compliance. In addition, emphasis will be placed on the less error prone electronic filing. The extent of error detection and correction activities conducted by STAWRS agents will be controlled by participating agencies.
  
  
• Improved, simplified wage code
  
  To the extent that simplification is achieved through harmonization, STAWRS will promote laws, regulations and procedures that will be easier for agencies to interpret and administer. Comparative analyses will provide jurisdictions with a basis to review their current laws, regulations, procedures and instructions relative to other jurisdictions and to remove confusing language and provisions that have outlived their time. The net result from an agency's perspective will be more efficient processes and savings through reduction in redundant systems.

• STREAMLINED CUSTOMER SERVICE

Electronic Information Dissemination

The Electronic Information Dissemination initiative seeks to increase stakeholder awareness of the STAWRS program and it's progress, and to provide easier access to information necessary to the small business employer. New and experienced employers often need to consult with federal or state agencies regarding a wage reporting issue, or simply to obtain information. For many employers this process can result in multiple phone calls, across several different agencies and ultimately, frustration.

Accomplishments:

STAWRS has augmented its existing web presence by providing access to information on the STAWRS program and by including a new collaborative initiative for improved employer assistance. STAWRS has developed the Simplified Employer Assistance Kit (SEAK); a unified, comprehensive interface which allows access to information from all STAWRS participating agencies. SEAK provides the business employer with one-stop-shopping for establishing a business, continuing reporting requirements, or even termination of a business. SEAK capitalizes on existing information available through the participating agencies with the addition of a unifying interface for the small business employer. This user friendly interface also provides access to a host of other useful information via the "quicklinks" capability. Quicklinks is a dynamic set of information sources which can be updated in a timely manner to respond to the small business employer needs.

Next Steps:

SEAK was developed as a pilot feasibility study. The response has been very positive. In the next phase of Electronic Information Dissemination SEAK will be broadened by the following:

• More active involvement by the representative customer service branches of the STAWRS agencies;
  
  
• pilot participation with the participating states;
  
  
• analysis and consideration of operational implementation of the Employer Identification Number (EIN);
  
  
• potential collaboration with other agencies such as the U. S. Postal Service WINGS project;
  
  
• involvement of "tirekickers"; people who have identified the requirement for inter-agency collaboration who will act as partners through the development and operational deployment of SEAK.

Impediments:

No major impediments have been incurred on this initiative, other than those hurdles that are true of all multi-agency programs, such as the challenge of accomplishing synergy across agencies and the cultural change required to provide streamlined customer service across agencies.

• STREAMLINED CUSTOMER SERVICE

Electronic Business Support

Currently, this initiative consists of the "One Stop Social Security Number Validation". Today, employers may obtain SSN validation services from SSA in several ways. They can call SSA's toll-free telephone number to verbally request that SSA verify a small number (10 or less) of SSN and name combinations. Employers can also submit their requests in writing. Another SSN verification option currently available to employers is the use of magnetic media requests. This option is normally used by large employers and state agencies such as the department of motor vehicles. This STAWRS project involves further expanding employer SSN validation services to employers with personal computers and modem capability. Specifically, this would involve dial up submittal and overnight SSN validation services through the development and implementation of a small pilot bulletin board system. The resulting system would increase customer services as well as lower government operating costs. At this time, the project is in the conceptual stage of development, and will require several years to develop and implement.

Accomplishments:

A prototype was developed which allows employers to apply for Federal employer identification numbers via the Internet (formerly a four month wait was required).

Next Steps:

• Evaluate "SSN Validation Project" impact by recent Welfare Reform legislation .
  
  
• Prepare Project Plan/Schedule and secure budget approval.

Impediments:

• Security, Privacy, and Disclosure issues involving State and Federal agencies
• Budget approval

• SIMPLIFIED REQUIREMENTS

Harmonized Wage Code

Generally, employers must maintain separate wage records for Federal income tax withholding, State income tax withholding, Federal Unemployment Taxes (FUTA), State unemployment insurance contributions (SUI), and Social Security and Medicare taxes (FICA). In many cases, the employer must also report this information to various government agencies at different times,in different formats, and on different forms. This reporting problem is compounded when the employer does business in multiple states. The goal of the Harmonized Wage Code (HWC) project is to reduce or eliminate employer burden of maintaining multiple wage and employment files by developing harmonized code provisions. The HWC also would facilitate single reporting of employment data. The primary focus is on Federal and State employment tax provisions and Federal and State filing requirements.

Accomplishments:

• Research of existing federal and state statutes and regulations was completed.
  
  
• Definitions and components for key employment tax provisions were identified for key terms, i.e. employer, wages and employment.
  
  
• The first draft of a Harmonized Wage Code blueprint was developed, which was an analysis of existing conformity of research findings.

Next Steps:

• Integrate HWC with other STAWRS initiatives
  
  
• Perform Impact Assessments
  
  
• Development of a Model Code
  
  
• Develop Legislative Enactment Plan
  
  
• Develop Regulatory Enactment Plan
  
  
• Develop Plan for Administration Impediments:
  
  
• Requires legislative changes which may be difficult to achieve.
  
  
• Even if harmonization is achieved, it will be difficult to maintain it.
  
  
• The objectives of the Revenue Provisions and the Social Welfare Provisions are different and it may not be possible to harmonize the two concepts.

• SIMPLIFIED REQUIREMENTS

Harmonized Payment Due and Filing Dates

This initiative is also addressing simplification through harmonization, but is looking only at the payment due and filing dates. States have very diverse requirements for the filing and payment of withholding taxes. Unlike contribution returns and payments which are quarterly, each state may have annual, quarterly, monthly, semimonthly, weekly and semiweekly requirements for reports and payments based on the amount of taxes withheld. This is obviously very difficult and burdensome for the employer. This initiative seeks to analyze each agencies' and states' various payment due and filing dates with a goal toward aligning these dates to the greatest degree possible. The accomplishment of this alone, would be a tremendous relief to the small business employer, and especially those operating in multiple states.

Accomplishments:

• Research of existing federal and state statutes and regulations was completed.
  
  
• Most common filing periods and payment due dates were identified.
  
  
• A matrix of existing filing periods and payment due dates for the various states and federal agencies was developed.

Next Steps:

• Integrate HWC Payment Due and Filing Dates initiative with other STAWRS initiatives
  
  
• Perform Impact Assessments
  
  
• Development of a Model Code for Payment Due and Filing Dates
  
  
• Develop Legislative Enactment Plan
  
  
• Develop Regulatory Enactment Plan
  
  
• Develop Plan for Administration
  

Impediments:

• Requires legislative changes which may be difficult to achieve.
  
  
• Even if harmonization is achieved, it will be difficult to maintain it.
  
  
• The objectives of the Revenue Provisions and the Social Welfare Provisions are different and it may not be possible to harmonize the two concepts.
  

• SINGLE POINT FILING

Single Point Electronic/Magnetic Filing - Quarterly Reports

Employers would like to reduce manual processes involved in reporting data to various government agencies that do not currently have a standard way of reporting information electronically. They would like to send a report to one agency and have that agency share information with other agencies (Federal and State) which need their data. Currently, there are a number of proprietary formats and procedures acceptable by various government agencies for employers to use. As a result of these proprietary standards, many software developers are reluctant to develop to many different standards which may change without regard for consensus of the stakeholders.

Accomplishments:

• In August 1995, the STAWRS electronic filing prototype was tested for use in filing quarterly reports with the IRS and the States of New Mexico, South Carolina, Alabama, Illinois, Iowa, and Minnesota.
  
  
• In February 1996, the STAWRS prototype was used to create and transmit W-2/W-3 statements to the SSA.
  
  
• In July 1996, the first operational use of the STAWRS electronic filing prototype took place for filing quarterly reports with the IRS and the States of California, Minnesota, and Texas. Next Steps:
  
  
• Expand the pilot test of electronic filing to additional states and employers
  
  
• Evaluate the IRS' other electronic 941 filing system
  
  
• Procedures for registering new customers
  
  
• Customer support for new and existing customers
  
  
• Procedures for operational handling of data

Impediments:

• EMS unable to receive filing volumes.

• SINGLE POINT FILING

Single Point Electronic Filing - Forms W-2

Currently, SSA receives approximately 218 million Forms W-2 annually. Approximately 63 million are on paper, 126 million on magnetic tape, and about 29 million are submitted on diskettes. Last year, SSA received about 600,000 W-2 Forms electronically through a small dial-up pilot bulletin board system. SSA's current annual wage report systems for magnetic media and bulletin board submittals are labor intensive and provide limited customer services (no acknowledgment of receipt, unable to accept test files, etc.).

This project involves the development and implementation of a Prototype Electronic Filing System (EFS) for Forms W-2 and Forms W-3, including a market survey (forecast) of customer demand. The resultant system will provide the business community with convenient, service oriented, and cost effective ways (toll-free dial up, Internet, etc.) to file their tax and wage reports, as well as furnish the government with the infrastructure to process them and serve their customers (filers/employers) in a more cost effective manner.

Accomplishments:

For the 1995 Tax Year, the STAWRS Project Office demonstrated the ability to receive Forms W-2 and W-3 using a standardized Electronic Data Interchange(EDI) format.

Next Steps:
Expand the capability to receive W-2 data electronically and determine how to best transfer this information to IRS.

Refine the EDI Automated Wage Reporting (AWR) formats.

Impediments:

The funding freeze has precluded an effective contractor transition from Phase I to Phase II.

• SINGLE POINT FILING

Single Point Paper Filing - Quarterly Reports

Currently, from an employer's perspective, separate, multiple tax returns must be filed with both the Federal government and State governments. This redundant process adds significantly to overall Taxpayer Burden. Strictly from a Federal perspective, a single point of filing exists for all Federal employment-related returns. Under the STAWRS concept, the employer would file one quarterly document, at one place, and meet both Federal and State filing requirements.

As a result of IRS Commissioner Richardson's speech of December 7, 1995, to participants at the 13th National Small Business Conference, STAWRS contacted the State of Oregon concerning their participation in the Single Point Paper Filing initiative. Oregon agreed to work with STAWRS in exploring the feasibility of this project. Oregon brings to this effort their experience acquired through combining five of their employment tax returns into one form, filed at one location within the state.

Accomplishments:

• Employer Survey has been drafted for survey to be conducted of Oregon employers.

Next Steps:

• In October 1996, a meeting will be held with selected Oregon employers to review the draft of the combined Oregon/Federal Quarterly return. This group will also review the draft survey being sent to Oregon employers. The survey is planned to take place and results analyzed early in 1997.

Impediments:

Several categories of issues are impediments:

• Disclosure/Privacy Issues:
  
  Sharing of common data between Federal Government (IRS and SSA) and states; warehousing of paper forms; maintenance of a database; access to database/form for compliance purposes; third party receipt of data/form.
  
  
• Filing Issues:
  
  Would receipt by a state agency, or at a third-party location, constitute receipt by IRS? For compliance purposes, what constitutes taxpayer signature? Can taxpayers voluntarily participate in a test?
  
  
• Appropriation/Contracting Issues:
  
  Can the Federal Government contract with states to do work for them? Is the Federal Government allowed to use specific Agency appropriations to reimburse state governments for work they perform for them?
  
  
• State Legislatures: Do they want these forms combined? Does combining forms require State Legislative action?
  
  
• Employers:
  
  Is a draft combined Federal/State form something they want? Do they perceive such a form as a reduction of reporting burden?

• SINGLE POINT FILING

Single Point Paper Filing - Forms W-2

The genesis of this project stemmed from an IRS Information Returns Processing Advisory Committee (IRPAC) meeting in 1990 where it was suggested that the government could reduce employer reporting burden by allowing employers to file a single annual wage/tax report to a single central agency. This agency would process the data and forward it to the states and other agencies, in electronic form, to fulfill their various requirements. Because of the high costs associated with processing paper submissions (capturing and data perfection efforts), most states do not process paper Form W-2 and Form W-3 submissions. Consequently, this information is not available for their tax compliance purposes. Given these circumstances, the Federation of Tax Administrators (FTA) became an active sponsor of this project.

Accomplishments:

• Each year, starting in 1994 for tax year 1993 submissions, SSA has been capturing a number of additional state data fields from scannable paper Forms W-2 and passing this information on to IRS where it appends these specially formatted Form W-2 data records with address information and then sorts and distributes them to the participating states. Currently there are 36 states participating.
  
  
• Discussions are underway to arrange for SSA to serve as the single point for all Form W-2 filing (paper, electronic, and magnetic tape) on a full cost sharing basis with IRS and participating State taxing authorities.
  

Next Steps:

• The Federation of Tax Administrators (FTA) is to prepare a preliminary report on projected electronic benefits to State taxing authorities.
  
  
• STAWRS project staff will begin discussion with OMB to reach a decision as to how the institutionalized project will be funded.
  
  
• Decision by States as to whether they wish to have SSA provide W-2 data on an on-going and full cost sharing basis.

Impediments:

• Cost to the State taxing authorities

• STREAMLINED CUSTOMER SERVICE

  Electronic Information Dissemination

  A new World Wide Web (WWW) site was designed which provides information on the STAWRS initiatives, and links to federal/state forms, publications, and customer service information. "One stop Federal shopping" for business was developed by incorporating employer-related information from multiple agencies into the "STAWRS Employer Assistance Kit"

  Electronic Business Support

  A prototype was developed which allows employers to apply for Federal employer identification numbers via the Internet (formerly a four month wait was required).

• SIMPLIFIED REQUIREMENTS

  Harmonized Wage Code (HWC)

  Research of existing federal and state statutes and regulations was completed. Definitions and components for key employment tax provisions were identified for key terms, i.e. employer, employee, wages and employment. The first draft of a Harmonized Wage Code blueprint was developed which was an analysis of existing conformity of research findings.

  Harmonized Dates

  Research of existing federal and state statutes and regulations was completed. Most common filing periods and payment due dates were identified. A matrix of existing filing periods and payment due dates for the various states and federal agencies was developed.

• SINGLE POINT FILING

  Electronic Quarterly Reports

  In July 1995 the STAWRS electronic filing prototype was tested for use in filing quarterly reports with the IRS and the States of New Mexico, South Carolina, Alabama, Illinois, Iowa, and Minnesota. In July 1996 the first operational use of the STAWRS electronic filing prototype took place for filing quarterly reports with the IRS and the States of California, Minnesota, and Texas.

  Electronic Forms W-2

  For the 1995 Tax Year, the SSA demonstrated the ability to receive Forms W-2 and W-3 using a standardized Electronic Data Interchange (EDI) format.

  Paper Quarterly Reports

  As a result of a plea to the small business community by IRS Commissioner Richardson in December 1995, the State of Oregon agreed to work on the feasibility of combining federal and state quarterly reports. By June 1996, a draft combined Oregon/Federal form was created.

  Paper Forms W-2
  
  The number of states participating in the Paper Forms W-2 project, in which SSA scans the additional state information on the form, increased from 18 to 36 states.
  Several states eliminated paper Form W-2 filing.
  Discussions are underway to arrange for SSA to serve as the single point for all Form W-2 filing (paper, electronic, and magnetic tape) on a full cost sharing basis with IRS and participating State taxing authorities.

STREAMLINED CUSTOMER SERVICE

STAWRS will finalize the electronic employer identification number application process. Cooperative initiatives with the Small Business administration will be established and new state agency partners will be added.

SIMPLIFIED REQUIREMENTS

Completion of the blueprint for a Harmonized Wage Code will be a significant milestone towards the realization of reduced employer burden. This will be the foundation which the additional STAWRS initiatives will build upon.

SINGLE POINT FILING

The electronic filing concept testing for Forms 941, Forms W-2, and state Unemployment Insurance reports will be completed. Employer acceptance and parallel testing of the combined quarterly report in Oregon will be completed. A Federal/State partnership for Telefile will be established.

8. Point of Contact

For more information concerning the STAWRS project, please contact:
Midori Morgan-Gaide (202) 622-5049
Executive-in-Charge
1425 New York Avenue,
Suite c-136 Washington, DC 20006