Personal Finance

This is how your employer can botch up your taxes

Key Points
  • At times, employers inadvertently send workers an erroneous Form W-2, which makes filing your taxes even more of a hassle.
  • Potential flubs include the wrong Social Security number, incorrect dependent care expenses and the wrong tax treatment on workplace life insurance.
  • Filed with the wrong data? Depending on the magnitude of the error, you may have to file an amended return.
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Sometimes your employer can derail your tax season.

Earlier this year, employees received their Form W-2 from their employers, detailing how much they earned, what they contributed to any retirement plan and how much was withheld in taxes.

You were supposed to get your W-2 by Jan. 31.

Early bird filers tend to snap up this information and submit their returns as soon as possible.

Once in a while, those motivated taxpayers get a surprise in the mail sometime later: a corrected W-2 from their employer.

The upshot: You may have filed a return with the wrong data and may have to amend it.

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In the best-case scenario, your employer messed up your address or misspelled your name.

Worst case, your wages are off by thousands of dollars due to mistakes around the tax treatment of your employee benefits, including dependent care expenses and life insurance premiums.

"It's calculation errors or transposition errors," said Cari Weston, CPA and director of tax practice and ethics at the American Institute of CPAs.

"This isn't as likely to happen at larger companies, but it does happen with small mom and pop companies that are working with small bookkeepers," she said.

Here's how to deal.

Form W-2c

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You might not know that there's something wrong with your W-2 until your employer sends you a corrected version of the form or what's known as a W-2c.

Don't panic. Instead, call your employer and ask your human resources department for an explanation of what went wrong, said Weston.

In the event you caught the mistake yourself — perhaps by noticing that your wages and withholding in your W-2 are far off from what was in your last paycheck for the prior year — you should still reach out to your company's human resources department.

"You don't have to file a return with that inaccurate W-2," Weston said. "Go back to your employer, tell them it's wrong and ask them to correct it."

Workers have recourse in the event their employer doesn't respond to the request. In this case, notify the IRS that your company won't send you an updated version of the form.

This isn't as likely to happen at larger companies, but it does happen with small mom and pop companies that are working with small bookkeepers.
Cari Weston
CPA and director of tax practice and ethics at the American Institute of CPAs

"Once they report this to the IRS, the agency will initiate a formalized complaint process and attempt outreach to the employer," said Stephen Dombroski, senior manager, payroll tax compliance at Paychex.

In this case, the IRS will send you Form 4852 so that you can estimate the data that would otherwise be on your W-2 and file your taxes.

Be ready to explain to the tax agency how you arrived at your numbers.

Once your W-2 has been squared away, take a few minutes to check your online account with Social Security to ensure that you have accurate earnings reported, said Dombroski.

"Say you had a significant bonus paid during the year, and it wasn't on your W-2," he said.

If those earnings weren't properly reported and taxed, it could affect your retirement benefits down the line, Dombroski said.

Amended returns

If you were so proactive that you mistakenly filed your tax return early with the wrong data — only to get a W-2c later — you may have to file an amended return.

Amended returns must be filed by hand and they can take up to 16 weeks for the IRS to process.

Consider bringing your corrected W-2 to your tax preparer or CPA to determine the magnitude of the change versus the cost of amending your return, said Weston.

"If it's significant, you'll have to amend it," she said. "But what if it's a $20 difference? You could let the IRS bill you and pay it when you get the notice.

"This is a judgment call," Weston said.

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