November 1996

STAWRS PROJECT UPDATE page 5

working with the IRS, Social Security Administration and other state and federal agencies on a Simplified Tax and Wage Reporting System (STAWRS) project. As the name implies, the goal of this project is to make it easier for employers to provide employment tax payments and information to the federal government and the states. Two key aspects of the project are to provide employers with a single-point-of -submission for most of their employment tax filings and payments. The information and payments would then be forwarded to all affected jurisdictions. harmonize the wide array of definitions and procedures associated with how taxes and wages are defined and reported across jurisdictions. At this time, the STAWRS project is still in the definition and planning stages and its success hinges on the development of a consensus among federal and state government agencies, employer groups and others a difficult task. Regardless of the eventual success or failure of this specific project, FTB will continue to support efforts to build a more seamless taxpayer interface between state and federal tax administration agencies." ***** Electronic Data Interchange (EDI) Pilot Project for Forms W-2 Project Objective: The objective of the proof-of-concept pilot initiative is to evaluate the technical feasibility and economic merits (cost/benefit to both employers and government) of using EDI (X-12 compliant standard) to support the electronic transmission of Forms W-2, Wage and Tax Statements, from Form W-2 filers to the Social Security Administration (SSA). This effort also involves the development of EDI customer demand/usage forecasts for each filing option that is determined applicable. Project Background: The success of STAWRS is largely dependent on the speed and efficiency of private industry in adopting electronic commerce. EDI (its associated standards, protocols, and procedure) is viewed as the key to achieving success in electronic commerce. While EDl is commonly recognized and accepted as a cost effective method of conducting electronic commerce involving single transactions that need to be sent from one institution to multiple organizations, both technical and economic questions remain to be answered for EDI involving large volumes of transactions to be sent from one organization to multiple organizations such as those required for Forms W-2 submittals.

Current Process: There is no current process involving the use of EDI to support Form W-2 filing requirements. SSA's current magnetic media (format also used for bulletin board system submittals) filing requirements and procedures (record formats, accept data element values, etc.) Are described in a document referred to as Technical Information Bulletin 4 (TIB-4). Progress/Current Status: The pilot project is being conducted in multiple phases over several years. The project was initiated (Phase 1) with the state of South Carolina and two other private sector employers as (data trading) partners for TY 1995. Phase I involved sending an X12 compliant standard record format established by the American Standards Institute (ANSI) over Value Added Networks (VANs). The transmitter's data file was passed through a translator/mapper (computer program) where the data was translated into the X12 format. Then the Xl2 formatted data was transmitted to SSA. At SSA, the data was passed through a translator/mapper to translate the X12 data into SSA's proprietary format, TIB-4, for processing. The primary objective of Phase I was to establish that W-2 dada could be successfully sent from an employer to SSA in EDI format. A report on the results of Phase I is expected to be finalized in the near future. The second phase of the EDI pilot (TY 1996 data) will involve (1) market forecast analysis, (2) assessment of applicability to various non-paper W-2 filing options, (3) trading partner expansion, and (4) further technical and economic evaluation and planning. In TY 1996, the three trading partners who participated in Phase I will submit their AWR filing data in EDI format for processing through the current Earnings Record maintenance System. The results of Phase II are expected to be documented and published to June 1997. It is anticipated that Phase III (TY 1997 data) will involve (1) analysis of EDI formatted transmissions over the Internet, (2) analysis of returning error information in EDI format, (3) additional trading partners for further evaluation, and (4) the limited initiation of a trading partner management and assistance program. A determination will be made as to the need to carry out subsequent phases based on the outcome of Phase II and preliminary Phase III findings. Joint Electronic Filing Moves Foreward In July 1996, STAWRS conducted its first operational field test for single point electronic filing

in the Electronic Data Interchange (EDI) format. This test allowed for the single point electronic filing of IRS's Form 941 (Employer's Quarterly Federal Tax Return), State Revenue Returns for the State of Minnesota, and State Unemployment Insurance Returns for the States of California and Texas. There were four volunteer companies that participated in the test. The participating companies were: Federal Liaison Services, Dallas, TX; PayDay of Minnesota, Inc., Bloomington, MN; Retail Technologies International Inc., Carmichael, CA; and Automatic Data Processing, Inc. of Roseland, NJ. The STAWRS Project Office extends its thanks to these participants. Having volunteer companies involved is critical to the development of processes and systems that will reduce taxpayer burden while increasing governmental efficiency. We would further like to express our appreciation to IRS's Memphis Service Center, especially to the Electronic Filing Staff, and the Electronic Submissions Staff in its Taxpayer Service organization. The involvement by the California Employment Development Department (EDD), the Minnesota Department of Revenue, and the Texas Workforce Commission, were instrumental in making this test possible. This filing would not have been possible without Software Control International (SCI). Inc, the projects support contractor. It was through their efforts and ability to overcome obstacles that this filing was successful. Without the innovative approach these companies and agencies have taken in supporting this project, we would have little hope in achieving our goals in Electronic Filing. The July filing was followed by further refinements and modifications which resulted in a successful October 1996 filing. After further refinement, the test will be expanded sometime after the first quarter filing for Tax Year 1997. For further information on this test contact Sharon Wilson Evans in the STAWRS Project Office. *****