Your Guide to Making W-2 Corrections

A new year is upon us, which means it’s time for W-2 processing. As you likely know, the IRS has detailed requirements for completing Form W-2. Further, the Social Security Administration (SSA) has specific deadlines for when W-2s should be filed with the agency and delivered to employees. Specifically, you must fill out a Form W-2 for every employee to whom you paid $600 or more during the tax year. This rule stands, regardless of your business size. You must also file each W-2 with the SSA and give employees their copy of the form no later than January 31. But to err is human. So, what should you do if you discover a W-2 error? First, know that W-2 errors are highly fixable, so there’s no reason to panic. Next, we’ll go over the different types of W-2 mistakes. Then, we’ll discuss when and how to resolve those errors via a corrected Form W-2, also called “Form W-2c.”

Types of W-2 mistakes

According to the IRS, the most common W-2 errors include:

• Omitting decimal points and cents from dollar amounts
• Putting dollar signs in “money” boxes
• Failing to properly format employees’ name in box “e”
• Entering the wrong employer identification number, or listing the employee’s Social Security Number as the EIN
• Using print that is too large or too small. The IRS recommends 12-point Courier font
• Erroneously checking the “Retirement plan” slot in box 13
• Not making entries visible enough. Only black ink is allowed
• Failing to use the official W-2 form. The red-inked copy on the IRS website is for informational purposes only

Other W-2 errors:

• Wrong amount of federal, state, and/or local taxable wages
• Incorrect federal, state, and/or local taxes withheld
• Inaccurate employee name, address, and/or SSN
• Improper coding for box 12
• Inaccurate Social Security tips or allocated tips
• Incorrect tax year

When to use Form W-2c

Although Form W-2c is appropriate for fixing many W-2 mistakes, not all W-2 blunders require a W-2c. You can use Form W-2c to correct these errors:

• Inaccurate employee name, address, or SSN
• Incorrect EIN
• Incorrect wages or tax withholdings
• Wrong tax year
• You reported 2 W-2s for an employee under the same EIN, but only 1 should have been reported
• You reported 2 W-2s for an employee under the same EIN, but only 1 is incorrect

• If you’ve already given the employee their W-2 copy, but haven’t filed the form with the SSA. Instead, check the “Void” box on Copy A of the incorrect W-2. Then, create a new W-2 with the appropriate information. Write “CORRECTED” on the employee’s copy of the new W-2; give this “CORRECTED” copy to the employee. File Copy A of the new W-2 with the SSA, but do not write “CORRECTED” on the SSA’s copy
• To report back pay. Instead, review IRS Publication 957 for instructions on reporting back pay to the SSA

10 tips for completing Form W-2c

Make sure you’re using the official IRS Form W-2c. You can order W-2s and W-2cs from the IRS online or by calling the agency. Or you can buy them from an external authorized seller, such as a major office supply store.

If you outsource payroll processing, including W-2 administration, your payroll provider is likely responsible for obtaining W-2 forms and handling W-2 preparation, distribution, and corrections.

If you perform W-2 processing in-house, review the IRS’ General Instructions for Forms W-2 and W-3, which include the following 3 sections for rectifying W-2 errors:

1. General instructions, such as when and how to file Form W-2c (and Form W-3c — the transmittal form)
2. Special situations, such as correcting only the employee’s name and/or SSN, inaccurate tax year or EIN, or more than 1 W-2 for the same employee
3. Specific instructions, such as how to complete each W-2c box

The instructions vary, according to the type of error.

Note the situations where a W-2c is optional. For example, if the W-2 reflects the wrong employee address, but everything else is accurate and you’ve already filed the W-2 with the SSA, you can make the correction in one of three ways:

1. Give the employee a new Form W-2 with the correct address. Write “REISSUED STATEMENT” on the new copies, but do not file Copy A with the SSA
2. Furnish a Form W-2c to the employee showing the right address in box “i”, but do not file Copy A of the W-2c with the SSA
3. Put the W-2 with the incorrect address in an envelope displaying the correct address and deliver it to the employee

Of those 3 alternatives, only #2 requires a W-2c.

You can make changes to state or local W-2 information on Form W-2c. But if those are your only changes, do not file the W-2c with the SSA. Instead, file the W-2c with the state or local administering agency (based on their reporting requirements) and give the employee their copy.

If you’re not sure a W-2c is the right approach for resolving a W-2 error, or if you need clarification on the IRS’ instructions, seek expert advice. Remember, the goal of the W-2c is to repair the issue, not to create another faux pas.

Don’t forget to send Form W-3c, which is a summary of all the W-2cs being sent, with your W-2c submission. If the W-2cs are for different tax years, file a separate W-3c for each tax year.

File the W-2c and furnish a copy to the employee as soon as possible after detecting the W-2 error. The SSA recommends that employers file W-2s and W-2cs online to save time and help improve accuracy.

Try to prepare and furnish W-2s early, prior to the January 31 deadline. This may help you promptly catch and remedy W-2 problems.

Do not ignore W-2 mistakes. If an employee brings the issue to your attention and you fail to address it, they can lodge a complaint against you to the IRS. You can face penalties for not filing a correct and timely W-2. Example: For filings due Dec. 31, 2019, the penalty is $50 per Form W-2 filed correctly within 30 days of the deadline, up to the maximum penalty for the year ($194,500 for small businesses). The maximum penalty for not filing a corrected W-2 at all is $270 per form. You can avoid the penalty if the error is “inconsequential” or if you can show “reasonable cause.”

Conclusion

The information on your employees’ Form W-2 impacts their federal and applicable state or local tax returns. Therefore, the data needs to be precise. If the employee has already filed their returns by the time you issue a corrected W-2, depending on the type of error, they may need to amend their return. You, as well, may need to amend your business’ employment tax returns.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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