TAX NEWS - DECEMber 2009

W-2 Replacements and Corrections: Best Practices

As you read this, you might not have even given your employees their Forms W-2 (Wage and Tax Statement; due to employees by January 31). Just the same, the American Payroll Association offers the follow-ing tips on handling requests for replacements or corrections.


Replacements

Make it easy on yourself. Devise a form for employees to complete to request a replacement or correction. This will decrease your time taking details from them. If an employee didn't get a W-2 because of a change in address, you may send a copy of the original W-2 to the new address (you don't need to correct the address on the W-2 itself).

If you are replacing a W-2 that the employee lost, destroyed, or never received due to an address change, you are allowed to charge a fee. The IRS has not set a dollar limit, but be consistent among your employees.


Prepare Corrections online for tax-Years 2006-2009!

If something was reported incorrectly on a W-2, you'll need to prepare a W-2c, Corrected Wage and Tax Statement, and give copies to the employee, the Social Security Administration (SSA), and per-haps to state or local agencies.

You can prepare and file Forms W-2c (as well as Forms W-2) on the SSA's Business Services Online (BSO) website (www.ssa.gov/employer). It also allows you to print copies for your employees and any state/local agencies. New this year: you can prepare Forms W-2c for any of the four preceding tax years on BSO.

If you are changing only state or local information, you can't use BSO, but you may obtain paper forms by calling the IRS at 1-800-TAX-FORM.


How to Complete a W-2c

You must complete boxes a-d and h-i (tax year and basic employer/employee information). The num-bered boxes (1-20) correspond to the box numbers on the W-2. For example, "Wages, tips, other com-pensation" goes in Box 1 on the W-2, and any cor-rections go in the two boxes for Box 1 on the W-2c, indicating the "Previously reported" amount and the "Correct information." Any boxes for which you have no correction should be left blank.

If you have over-withheld Social Security or Medicare tax from an employee, you must refund the excess to the employee and correct the wage and tax amounts on Form W-2c. You'll then file Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, to get that money back, along with the employer-matching taxes, from IRS.

However, once federal and state income taxes have been deposited, you generally cannot correct those amounts via a W-2c. An employee who was over-withheld will get those taxes back after filing a personal income tax return.

For each W-2c, you need to consider whether you need to file Form 941-X and/or an amended Form 940, Employer's Annual Federal Unem-ployment (FUTA) Tax Return.