Question: During 2022, the final paycheck for an employee was short $58 gross pay, and the difference was made up out of petty cash. Payroll was not informed of the payment. The 2022 Form W-2 did not include the $58, and taxes were not withheld. Does the 2022 W-2 have to be corrected for such a small amount?
Answer: In general, unless an error or omission on a Form W-2, Wage and Tax Statement, is inconsequential, it must be corrected. An inconsequential error or omission is one that does not prevent or hinder the Social Security Administration or the Internal Revenue Service from processing the form, from correlating the information required to the employee’s tax return, or from putting the form to its intended use. Errors that are not inconsequential are those relating to a taxpayer identification number, a payee’s surname, or any money amounts.
Errors that are not inconsequential may be subject to penalties for failure to file or furnish a correct information return by the due date. Penalties are significant. For Forms W-2 filed in 2023, the penalty for each incorrect form is $50 if corrected within 30 days of the due date, $110 if corrected by Aug. 1, and $290 if corrected after Aug. 1.
Following the change in due date for filing Forms W-2 with the SSA from Feb. 28 to Jan. 31, the IRS recognized that there could be an increase in errors of small amounts. The agency established a de minimis safe harbor rule for errors of minimal value.
The safe harbor applies if no single incorrect amount on the Form W-2 differs from the correct amount by more than $100 and no single amount reported for tax withheld differs from the correct amount by more than $25.
If the safe-harbor rule applies, the employer is not required to correct the form, and the form is treated as having been filed with all the correct required information.
However, the safe harbor does not apply if the employee elects to have the Form W-2 corrected. If the employee makes the election, the employer has 30 days from the request to prepare Form W-2c, Corrected Wage and Tax Statement, file the Form W-2c with the SSA, and furnish a copy to the employee. If the correction is made timely, the error is treated as due to reasonable cause and no penalty is assessed.
The employee has three years to make the election. The employer may make the correction of its own volition if the employee does not make the election. If the conditions are met for the safe harbor, voluntary correction will also be treated as due to reasonable cause.
To correct the error, the employer prepares a Form W-2c and Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, for the quarter in which the error occurred.
This column does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Patrick Haggerty is the owner of a tax practice in Chapel Hill, North Carolina, and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at phaggerty@prodigy.net.
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