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April 2009 - In March, we implemented our new Systemic Issue Management System. This system allows us to collect taxpayer issues and track the research and resolution.

Robert, a CPA from LA, reported the following issue: Why are several of his clients with multiple W-2s being denied refunds of their excess State Disability Insurance (SDI) contributions?

Our staff looks at each W-2 to verify SDI withheld for each employer. This occurs whether the return was e-filed or filed on paper. For paper returns, sometimes there is a problem because the SDI amount is not clearly identified as SDI on each W-2. Instead, there is only a dollar amount present in box 14 of the W-2. To help alleviate this problem we trained our staff to look at the amounts appearing in box 14, regardless of the presence of an identifying abbreviation. Amounts present with no designator are compared to the current percentage equal to the SDI rate. If those amounts match, we verify the wages were claimed on the return and then allow the excess SDI.

For e-filed returns, because the physical W-2 is not attached, we must rely on the preparers input for each wage and tax statement (W-2) to verify SDI amounts. Tax preparers should look for the efile software prompt that asks the preparer to enter SDI information in Disability Plan Literal (Field 363) and to specify a designator. The designator identifies it as SDI or VPDI, etc., and places it on the wage and tax statement with the appropriate abbreviation. The e-filed W-2 is set up the same as paper with box 14 utilized for SDI, employees are trained to verify any amount entered in the field for SDI. With the presence of the designator, employees can more easily identify the amounts as SDI.

That being said, it looks as though both FTB and tax return preparers can work together to reduce or hopefully eliminate this problem (ok reduce). Thank you Robert for Asking the Advocate.

If you have a systemic issue or just want to check out the system, go to ftb.ca.gov and search for systemic issues. We will research the issue and take the appropriate actions.

Steve Sims, EA
Taxpayers Rights’ Advocate