Payroll in Practice: 7.18.2022

Question: An employee returned a Form W-2 to the employer because the employee’s Social Security number on the form was incorrect. The W-2 had been filed with the Social Security Administration. How is the Social Security number corrected?

Answer: Because the original Form W-2, Wage and Tax Statement, has been filed with the Social Security Administration, the Social Security number is corrected by using Form W-2C, Corrected Wage and Tax Statement. The corrected form is filed with the SSA so the agency can properly record the earnings in the employee’s account. If the number was also incorrect on prior-year forms filed by the employer, the prior year forms do not have to be corrected. The SSA will make the appropriate corrections to the employee’s account.

An employee might have difficulties applying for benefits if the W-2 is not corrected. Employers may be penalized for filing incorrect forms. Correcting the error as soon as it is found may minimize or otherwise mitigate any penalty.

To correct Form W-2 when the only error is the employee’s name or Social Security number, the employer must complete Boxes a through i on Form W-2c, Corrected Wage and Tax Statement. This includes the employer’s name, address, and tax ID number; the tax year; and the employee’s correct Social Security number. Employers should be sure to check Box e to indicate that the Social Security number was incorrect on the previously filed W-2. The employee’s previously reported Social Security number, name, and address are reported in Boxes f to i. If the correction is submitted electronically, the corresponding sections of the electronic W-2c are prepared and transmitted to the SSA.

Because there were no errors in the money amounts, the employer should not enter anything in Boxes 1 to 20 for wages or taxes.

Copy A is sent to the SSA. Although the employer is under no obligation to do so, a copy of the W-2c should be given to the employee.

If possible, the employer should file the correction before Aug. 1 to minimize penalties if none of the exceptions apply. Reasonable cause is the main exception in the case of an incorrect employee Social Security number. Penalties likely would be waived if the employer can establish that the employer has been otherwise compliant and has exercised due diligence with respect to the tax ID number. Evidence might include the initial solicitation of the Social Security number, using Form W-4, Employee’s Withholding Certificate, and following up when an issue arose through the Social Security Number Verification System or notice from the IRS or SSA.

Employers may manually correct employee copies of the original W-2 because the IRS relies on the SSA’s W-2 file for matching instead of Copy B of Form W-2. For electronically filed returns, Copy B is retained by the preparer and is not sent to the IRS unless the IRS requests to see it.

Prior to 2017, the IRS relied on Copy B of Form W-2 to process Forms 1040, U.S. Individual Income Tax Return, that were filed on paper before the SSA transferred the W-2 data it collected from employers.

Under current rules, employers are required to file Forms W-2 with the SSA by Jan. 31. The SSA provides the W-2 file to the IRS by early February.

Question: An employer’s regular biweekly payroll tax liability generally exceeds $100,000. The employer deposits the taxes as required on the next business day. Occasionally, the employer also issues manual checks on a regular payday, and the amount of tax withholding is not known in time to include in the employer’s regular payroll tax deposit.

Is the tax liability on the manual checks also due the next business day? Or, can the deposit for the manual checks be included with the next scheduled biweekly payroll deposit?

Answer: There are two questions to consider: First, must the taxes for the manual checks be deposited the next business day if they are issued on the same day as the payment that requires a tax deposit on the next day? Second, can the taxes on the manual checks, whether issued on or off the regular payment date, be deposited with the next biweekly payroll tax deposit?

The company is a semiweekly depositor with a biweekly payroll. Semiweekly means deposits are due on the Wednesday or Friday after the payday (i.e., every half week). Biweekly means employees are paid every two weeks.

The answer to the first question is that the tax deposit for the manual checks is due the next business day, with a qualification. Because the payday is the same for the regular and manual paychecks, the liability is considered accumulated on that day. The $100,000 next-day deposit rule is triggered after at least $100,000 in taxes is accumulated any day during a monthly or semiweekly deposit period. Under this rule, the tax deposit is due the next business day instead of the regular monthly or semiweekly deposit schedule due date.

A monthly schedule depositor that accumulates a $100,000 tax liability on any day during a deposit period becomes a semiweekly schedule depositor on the next day and remains a semiweekly depositor for at least the rest of the calendar year and for the following calendar year.

When at least $100,000 is accumulated during a deposit period, the accumulation stops at the end of that day and a new accumulation starts the next day. For example, an employer accumulates $115,000 in liability Tuesday and $10,000 on Wednesday. The $115,000 must be deposited Wednesday, but the $10,000 is not added to the previous $115,000. Instead, the $10,000 starts a new accumulation. Under the semiweekly deposit schedule, the $10,000 liability would not be due until the following Wednesday unless the new accumulation reaches $100,000 before that date.

Because manual checks are issued before the end of the payday, and not the next day, the related taxes are included in the accumulated liability for that payday and must be deposited the next business day.

The qualification involves the possibility that the amount of tax for the manual checks falls within the accuracy of deposits rule. Under the accuracy of deposits rule, a deposit shortfall that does not exceed the greater of $100 or 2% of the required deposit is considered paid on time if it is deposited by the shortfall makeup date. For perspective, 2% of $100,000 is $2,000. If nothing else, this makes it possible for an estimated amount to be included in the deposit or schedule an additional deposit to keep the shortfall on the next business day within the allowable amount.

An extra amount also could be included in scheduling the deposit. If the additional amount is more than the liability, it can be applied to the next deposit. If it is less than the liability, the additional amount makes it more likely the accuracy-of-deposits rule would apply. For example, the regular deposit is $115,000. The employer could schedule the electronic payment on that payday that includes an extra $5,000 to cover checks that were issued too late that day to be included in the deposit.

In the case of a semiweekly depositor, the shortfall makeup date is the first Wednesday or Friday, whichever comes first, on or after the 15th of the month after the month the shortfall occurred. If the due date of the return for the period of the tax liability would be earlier, then that is the makeup date.

If the accuracy-of-deposits rule applies, including the taxes for the manual checks in the next biweekly deposit should be fine as that date is before the shortfall makeup date.

If the manual checks were issued on a day after the regular payday, the accuracy-of-deposits rule would not apply to those checks. A deposit made with the following biweekly payday deposit would be late and subject to the late-deposit penalty. Instead, the taxes for the manual checks should be deposited by the semiweekly deposit date (Wednesday or Friday) for the day the checks were issued rather than holding the funds for deposit with the next regular payroll deposit.

The payday for the manual checks is the date the checks are issued. The deposit due date is the semiweekly deposit schedule due date, which is either the Wednesday or Friday after the day the checks were issued.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., or its owners.

Author Information

Patrick Haggerty is the owner of a tax practice in Chapel Hill, N.C., and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at phaggerty@prodigy.net.

Do you have a question for Payroll in Practice? Send it to phaggerty@prodigy.net.