IRS Expects to Fix Glitch Affecting Improperly Withheld Form 8955 Refunds

The IRS has confirmed that they expect to fix a system-wide glitch that has resulted in improperly withheld refunds of erroneous penalties related to Form 8955-SSA filings. 

Kelsey Mayo, the American Retirement Association’s Director of Regulatory Policy, reports that some plan sponsors’ refunds have been improperly withheld, but that the IRS has confirmed that it expects to have a systematic fix implemented for the impending corporate tax return deadline. 

How This Arose 

Form 8955-SSA is a required annual filing with the IRS for those who must file a Form 5500 with the Department of Labor. The filing deadline for Form 8955-SSA is the same as that for the Form 5500.

Last August, some plan sponsors for whom complete Forms 8955-SSA for the 2022 plan year were filed through the IRS FIRE system before the July 31, 2023 filing date received an IRS notice saying the 2022 Forms 8955-SSA were not filed in a timely manner or were incomplete. These notices included an assessment of the statutory penalty for a late filing. The erroneous notices were due to a programming issue in the IRS system that receives Forms 8955-SSA. 

ARA members were among those who received the erroneous penalty notices. The ARA immediately contacted the IRS to report the matter and provide information to help the IRS address it.

In the Sept. 1, 2023 issue of Employee Plans News, the IRS confirmed that those who filed Form 8955-SSA on time did not need to respond to penalty notices dated before Sept. 1, 2023.

But in November, a related issue arose: some plan sponsors who received an erroneous Form 8955-SSA penalty notice reported that a portion of their tax refunds (such as payroll tax refunds) were being withheld to “satisfy” the 8955-SSA penalties.

Recent Developments

Mayo reports that she recently has been receiving an increasing volume of reports related to improperly withheld refunds, likely due to filings of employers’ federal income tax returns.  

Addressing improper withholding of tax refunds, says Mayo, “has, so far, been a manual process of corresponding with the IRS to have the penalty abated and the refund paid on an employer-by-employer basis.” However, Mayo reports that the IRS expects to implement a systematic fix for the impending corporate tax return deadline. “We understand that this will abate the erroneous penalties for all affected plan sponsors—allowing the refunds to be processed and eliminating the need to take action employer-by-employer,” she says. 

“This is great news for members and their plan sponsor clients,” Mayo says, adding that she is grateful that “the IRS prioritized getting a system fix in place by the corporate tax return deadline.”