Collecting Compensation Data from Employers (2012) / Chapter Skim
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Appendix B: Study of Employment Earnings for the Equal Employment Opportunity Program: A Possible Role for Administrative Data from Three Tax Systems--Nicholas Greenia
Appendix B: Study of Employment Earnings for the Equal Employment Opportunity Program: A Possible Role for Administrative Data from Three Tax Systems--Nicholas Greenia
Pages 111-130
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From page 111... ...
to issue regulations mandating the provision of earnings data from employers to the EEOC classified by the race, gender, and national origin of their employees. According to the proposed legislation, these pay or earnings data are needed to bolster the related employment and other data already collected through the equal employment opportunity (EEO)
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residents, taxes that help fund the Social Security and Medicare programs for retirees and other qualified recipients, and unemployment insurance taxes that fund the unemployment benefits of workers who are laid off during difficult economic times, particularly for extended periods such as during the recent deep recession. Another is data quality: the data records tend to have, in general, high levels of compliance because of the importance of these programs -- highlighted by the penalties for noncompliance -- for the nation's safety net and in funding congressionally mandated expenditures.
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The data are reported on IRS income tax returns (for individuals and businesses) , employment tax returns (for both the Federal Income Contributions Act [FICA]
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residents, taxes that help fund the Social Security and Medicare programs for retirees and other qualified recipients, and unemployment insurance taxes that fund the unemployment benefits of workers who are laid off during difficult economic times. Inter-Relationships The three sets of data are interrelated, albeit sometimes in subtle ways.
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The decennial census captures gender, race, and ethnicity, but, only every 10 years. However, the Census Bureau's American Community Survey (ACS)
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Although federal unemployment taxes serve several purposes, state unemployment taxes are used only to fund unemployment benefits in a particular state or territory (including the District of Columbia, Puerto Rico, and the Virgin Islands)
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Program at the Census Bureau starting in the 1990s.5 INTERNAL REVENUE SERVICE DATA This section presents a summary of several tax and information forms, especially Form W-2, Form 941, and Form 940, and why they might be of interest to expand the EEO-1 reports on employment and earnings data. In addition, it discusses the close relationship IRS and SSA have in terms of the first two forms, particularly for validating and reconciling amounts withheld for income, Social Security, and Medicare taxes.
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For purposes of expanding EEO-1 reports, three forms in particular figure prominently in the CAWR process: Form W-2, Form 941, and Form 940.7 Form 940, Employer's Annual Federal Unemployment Tax Act (FUTA) Tax Return8 Purpose Form 940 is required to be filed annually by an employer for purposes of reporting and paying the federal unemployment taxes required by FUTA.
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Coverage Withholding of federal income tax is not required for an employee who had no federal tax liability in the previous year and is expected to have none in the current year. However, because Social Security and Medicare taxes must be withheld, a Form W-2 must be filed for such an employee.
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Together, the W-2 earnings variables provide a unique and comprehensive window on earnings data at the employee level. Form 941, Employer's Quarterly Tax Return11 Purpose Form 941 is required to be filed quarterly by an employer in order to report and pay federal income tax withheld for employees, and both the employer's and employees' share of Social Security and Medicare Taxes.
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IRS uses a similar cross-check system involving more tax forms, such as the Form 104013 series of individual tax returns, to ensure that an individual's total reported income jibes with other reports of the income source; for example, the Form W-2 for earnings and other compensation and Form 1099R for income such as interest, dividends, and pension distributions. The consequences of being noncompliant with the federal income tax system are well known and potentially include not only prison, monetary penalties and interest, but also damage to one's credit ratings for both individuals and firms.
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, the Form SS-4 establishes an employer's account on the IRS Business Master File (similar to the business registers at BLS and the Census Bureau, but for tax administration) , including filing requirements for income tax returns (Form 1120 series, Form 1065 series, Form 990 series)
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Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding21 Although Form SS-8 is not required, it may be filed by either a worker or firm to determine whether a worker should be considered an employee or independent contractor. The resulting determination may have ramifications for not only IRS forms, such as the W-2 and employment tax returns, but also for UI and related record filings with the states for SUTA and their employment training administration programs.
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Additional Income Tax Returns Finally, several returns report earnings at both the individual and firm levels. For the former, Form 1040 and the related Schedule C (for sole proprietorships)
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. SOCIAL SECURITY DATA Although a massive amount of data exist at SSA, the data of most interest for expanded EEO-1 reports are captured from the application for an SSN and the linkable federal tax data shared by IRS.
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Census Bureau is a federal statistical office and does not collect administrative data directly or participate in the administration of the related programs, it may play a unique role in the utilization of administrative data for purposes of expanded EEO-1 reports for several reasons. First, the Census Bureau is an established and long-time user of administrative data for statistical purposes, and it has developed institutional expertise in the integration of these data with its own statistical survey and census data.
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Third, the Census Bureau is authorized to access earnings data from federal tax data that most other federal agencies, including SSA, are not authorized to access, for example, from income tax returns for individuals and employers. Fourth, the Census Bureau has a unique vehicle, the special sworn status process, which enables outsiders -- from other federal agencies and even outside the federal sector -- to access non-anonymized or confidential data.
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Thus, the IRS SOI and the IRS Research Office are statutorily authorized users of identifiable tax data within the tax agency. Non-tax administration uses are discouraged, and IRS policy -- and sometimes statute, e.g., for the Census Bureau -- has been that even authorized tax data access should be to the minimal extent necessary to accomplish an authorized purpose.
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State Data Although the collection of UI data is largely funded by ETA, the quarterly detailed employment and compensation data are retained by states and shared outside the states only rarely. Two important exceptions include the NDNH and the Census Bureau's LEHD Program.
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The primary purpose of the NDNH is to assist state child support agencies in locating parents and enforcing child support orders33; however, Congress has authorized a limited number of other state and federal agencies to receive information from the NDNH for authorized purposes, including for statistical research related to the child support mandate. Beginning in the 1990s, the Census Bureau began negotiating individual agreements with the states that resulted in their providing these detailed data to Census for the LEHD Program.
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