Payroll in Practice: 7.29.19

Practitioners’ questions are answered by a payroll and tax consultant who also is an enrolled agent licensed to practice before the Internal Revenue Service.

Question: An employee returned a W-2 because his tax preparer told him the Social Security number on it was incorrect and needed to be corrected. The W-2 has been filed with the Social Security Administration. How do we make a correction?

Answer: Because the original has been filed with the administration, a correction is made using Form W-2c, Corrected Wage and Tax Statement. The corrected form is to be filed with the SSA so the agency can properly record the earnings in the employee’s account.

An employee might find problems when applying for benefits if the W-2, Wage and Tax Statement, is not corrected. Employers may be penalized for filing incorrect W-2s. Correcting the error as soon as it is found may minimize the penalty.

To correct Form W-2 when the only error is the employee’s name or Social Security number, fill out Form W-2c through Box i. This includes the employer name, address, and tax ID number; tax year; and the employee’s correct Social Security number. Be sure to check Box e to indicate that the Social Security number was incorrect on the previously filed W-2. Enter the employee’s previously reported Social Security number, name, and address in Boxes f to i.

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

Send Copy A 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, file the correction before Aug. 1 to minimize penalties if none of the exceptions apply. The main exception in the case of an incorrect employee Social Security number is reasonable cause. Penalties likely would be waived if you establish that you have remained compliant and have exercised due diligence with respect to the tax ID number. This may include the initial solicitation of the Social Security number, using Form W-4, and following up when an issue arose through the Social Security Number Verification System.

Manual correction of the employee copies of the original W-2 works out fine because the Internal Revenue Service currently places less reliance on Copy B for matching purposes. The IRS uses the SSA’s W-2 file for matching. For e-filed returns, Copy B is retained by the preparer; it is not sent to the IRS.

Before 2017, Copy B for paper returns was used to document the amounts reported on the W-2 so the IRS could process returns before the SSA provided the W-2 file to the IRS.

Employers are required to file Forms W-2 with the SSA by Jan. 31. The SSA W-2 file is provided to the IRS by early February.

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