ACA Compliance Difficulties? The 1940’s Started it All.
This past tax year, many employers experienced a whole new dimension to documenting and reporting information about their employees to the government.
With the Affordable Care Act mandating that full-time employees were entitled to an offering of health care, employers were then thrust into a whirlwind of forms—from acknowledgment of Employee Sponsored Health Coverage to information regarding Employee Premium Tax Credits.
For many, the paperwork was tedious, as physical filings arrived in multiples and electronic filings led to difficulties with the IRS’ AIR system and the ascertainment of an access code number. Not only did it feel like the wheel was reinvented, it felt like the mechanics had to be relearned with penalties looming overhead. Over 70 years ago, Americans shared a similar sentiment with their first foray into income tax reporting.
In 1943, The Current Tax Payment Act was implemented, and with it came the first W-2 form.
It wasn’t exactly the first time the American government attempted a system of reporting and paying taxes, though this would be the first time it successfully stuck. In 1913, the Tariff Act was passed, only to be canceled out by 1916’s Income Tax Act. However, it took thirty years of trial and error to truly figure out the most effective means of documenting how much an employee made and how much would be turned over to the American government for income taxes.
At the time of ’43, the Social Security Act was in place so SS funds were already being allocated, along with the Victory Tax passed during World War II. Americans had just escaped the Great Depression in 1939 and were just finding their footing into sustainable income. So in 1943, the W-2 or “Withholding Tax Statement” (now the “Wage And Tax Statement”) was created and distributed by 1944. It worked in increments, or “pay as you go,” where income tax was deducted per pay period.
In the past, an annual lump sum of money was paid to the government—mainly by the wealthy, as only about four percent of Americans paid an income tax prior to the Current Tax Payment Act Of 1943.
The W-2 form went through a variety of changes over the years, as complexities of taxes grew. We even see now how new ones are added, with health care reporting being incorporated. In 1944, however, when the first W-2 arrived, the information was limited. Much like the Victory Tax’s V-2 form, the first W-2 included pertinent information like Employee/Employer Name/Address, Employee’s Social Security Number, the total amount paid for the year and the total taxes deducted. Dependents were also listed. While this sounds quite similar to the current process, the filing was open to multiple margins of error.
W-2 forms were carbon-copied slips to which most were typed on a typewriter.
If there was a mistake, an entirely new form had to be completed. Employer names and addresses were often added by way of a rubber stamp and inkpad, and since those stamps do not appear on carbon copies, every copy had to be stamped. A large stamp marked “EMPLOYEE’S COPY” graced the front of employee copies. Some chose to complete individual W-2 forms without carbon copies, typing the forms in duplicate. Other records had indicated some were handwritten.
As you can only imagine, discrepancies were likely, as handwriting could be misinterpreted, figures could be off from one employee’s W-2 copy to another (when typing each individually).
We wouldn’t see a truly successful computer for four decades later, and the first document scanner didn’t arrive until 1985.
Electronic document management would also arrive around the same time, meaning a simple form would remain complex for the next forty years.
Penalties were also a problem, as late filing was subject to a fine but so were errors in filing.
Sound familiar?
They say the more things change, the more they stay the same, and 73 years later Americans still face daunting tasks when it comes to reporting figures to the government. Sure, technology has ushered in somewhat expedited practices.
However, those glitches pale in comparison to the processes of days past.
To learn more about ACA compliance in 2021, click here.
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