Corrected W2s

[J R Sandoval EA]

Client received last year back pay from 2007 and 2008; however, the employer corrected the W2s for 2007 and 2008 instead of just adding it to the 2009 W2. Since the taxpayer received this income in 2009, I believe that he should report it in 2009. I am thinking of just adding it to his 2009 tax return with a note explaining the situation. Any thoughts on this?

Thanks in advance for your comments.

The amount is about $1500.00 and employer withheld Soc security and medicare taxes.

[TAXBILLY]

Are you sure? What did the W-2cs say?

taxbilly

[J R Sandoval EA]

Are you sure? What did the W-2cs say?

taxbilly

Basically it is a W2c for each of those years showing "amounts previously" reported and "correct information". No changes to withholdings for federal or state taxes but soc sec and medicare were changed to reflect the "correct amounts'.

[chuck]

No change to federal or state returns would occur then right.

[Diane]

If the money was received in 2009, then I would think there would be a 2009 W-2.

Diane

[J R Sandoval EA]

If the money was received in 2009, then I would think there would be a 2009 W-2.

Diane

There's a 2009 W2 for wages earned in 2009; however employee also received w2c's for 2007 and 2008 which include the back pay for those years. Since W2c's for 2007 and 2008 were issued, I am assuming that those back wages were not included in his 2009 W2; otherwise why issue w2c's for 2007 and 2008.

[J R Sandoval EA]

Client received last year back pay from 2007 and 2008; however, the employer corrected the W2s for 2007 and 2008 instead of just adding it to the 2009 W2. Since the taxpayer received this income in 2009, I believe that he should report it in 2009. I am thinking of just adding it to his 2009 tax return with a note explaining the situation. Any thoughts on this?

Thanks in advance for your comments.

The amount is about $1500.00 and employer withheld Soc security and medicare taxes.

I just spoke to the employer and was told that indeed they did not include that back pay in the 2009 W2, that they did amend the 2007 and 2008 W2's and sent them to the IRS. Since the taxpayer did not receive the income until 2009, I guess I will just add the income in line 21(Other income) with an explanation. Any thoughts on this?

Thanks

[elfling]

I just spoke to the employer and was told that indeed they did not include that back pay in the 2009 W2, that they did amend the 2007 and 2008 W2's and sent them to the IRS. Since the taxpayer did not receive the income until 2009, I guess I will just add the income in line 21(Other income) with an explanation. Any thoughts on this?

Thanks

You say there is no change to withholdings, but is the $1500 reflected in changes to income on the W2c? If not, one must consider that the money received was already accounted for on the original W2s and no change to any tax return would occur. However, if the income figures have changed (via W2c) I would choose to amend both the 2007 & 2008 returns on the aspect that the money was earned in those years. I believe it is important to have the years align. The tax rates/tables for those years are not the same as in 2009.

It seems to me that when it was earned trumps when it was received. It has been many years (early `90s) since we encountered a similar situation. But I seem to recall working with an auditor at that time who had us amend.

[jainen]

>>just add the income in line 21<<

As I read them, the instructions to Form 1040 say to report ALL wages on Line 7 whether or not they are shown on a W-2. In your case, since you have accurate numbers I recommend you use a Form 4852 Substitute W-2. I mean 2009 only, the year received. And if he does not otherwise make estimated payments, I would request abatement of any underpayment penalty, citing the employer's mistake as reasonable cause.

Also put together a response package while you have all the facts in mind, because you will almost certainly get IRS letters for 2007 and 2008 within a year or so. It's probably not worth the hassle for $1500, but in my opinion you should also check whether your client has a problem with Social Security quarters.

All this is of great value to your client, so be sure to include it on your invoice.

[J R Sandoval EA]

You say there is no change to withholdings, but is the $1500 reflected in changes to income on the W2c? If not, one must consider that the money received was already accounted for on the original W2s and no change to any tax return would occur. However, if the income figures have changed (via W2c) I would choose to amend both the 2007 & 2008 returns on the aspect that the money was earned in those years. I believe it is important to have the years align. The tax rates/tables for those years are not the same as in 2009.

It seems to me that when it was earned trumps when it was received. It has been many years (early `90s) since we encountered a similar situation. But I seem to recall working with an auditor at that time who had us amend.

That's exactly the issue; the wages were earned in 2007 and 2008 but were paid in 2009, and the employer did not include these back wages in the 2009 W2; instead he amended the 2007 and 2008 w2's. Withholdings were changed to soc sec and medicare only; no extra money was withheld for federal or state taxes.

We are talking about $1145.00 total; $445.00 for 2008 and the rest is 2007. Since most individual taxpayers use the cash method of accounting I do not see why would they be required to report the income in previous years as you suggest. I may be wrong. Any other suggestions?

Thanks

[kcjenkins]

J.R., I agree with you that he could report it in 2009, as long as it is clearly explained. My reasoning is that while he may have 'earned' it from work done in the prior years, his RIGHT to receive it was not determined until 2009. So he not only Received it in 2009, his right to receive it was not known until 2009.

[J R Sandoval EA]

J.R., I agree with you that he could report it in 2009, as long as it is clearly explained. My reasoning is that while he may have 'earned' it from work done in the prior years, his RIGHT to receive it was not determined until 2009. So he not only Received it in 2009, his right to receive it was not known until 2009.

Thanks all for your replies; I did report it in 2009 and am keeping copies of the check stub as well as the letter the employee received in 2009.