Correcting a W-2: From W-2c to 941-X and More

Maine Association of Payroll ProfessionalsDate:

November 30, 2012

Presented By: Rosemarie Fraumeni, CPP

Rosemarie Fraumeni, CPPManager, Payroll - American Dental Partners

• Biography• Certified Payroll Professional since 2000

• BS in Accounting• Involved in payroll since 1991

• Member of APA’s • National Speakers Bureau• Certification Advisory Board – CPP Committee• Government Affairs Task Force

• Member of the APA Boston Local Chapter• Current Vice President

• Member of the New England Payroll Conference Committee• Current Conference Chair and Treasurer

• APA Awards• 2010 Payroll Woman of the Year• Special Recognition 2008• Meritorious Service 2005

Form W-2c• Devise forms for employees to complete:• Include a schedule of when they will be processed• One for replacements• One for corrections

• Have an employee indicate what he/she thinks is wrong• Have employee attach supporting documents: copy of W-2, last pay

stub, etc.• Have employee sign and date the form – very important!

Form W-2 Replacements• Wrong address and it comes back:• Make a copy of the return envelop for proof of mailing• Put original in new envelope• Doesn’t require W-2c

• Completely lost:• Reprint, indicate “Reissued Statement” on the top – not required

by IRS, but good practice• You’re allowed to charge for this! (as well as replacements for

prior year Forms W-2)

Form W-2, Corrected Not W-2c• Issued before W-2s are filed with government, and assumes

that you can change the W-2 file that you’ll submit to SSA (but you might still need to file Form 941-X)

• Indicate “Corrected” on the top of the W-2 paper form• Form 941-X may be required

Review: Form W-2c• Boxes a-d and h-I are mandatory• Boxes e-g depend on circumstance• Can’t correct federal/state/local income tax withholding• Exception: an administrative error – such as “withheld $500, but

reported $600, and now must correct W-2 to reflect what actually happened”

Review: Form W-2c• Refunds to employees:• You may refund FICA, but not FIT/SIT/LIT• And you can request employer FICA too, on 941-X

• Review boxes:• Just complete boxes (as reported, as corrected) for anything you

are correcting• Don’t zero-fill other boxes• Box 12 codes: indicate code letter

Only Changing State of Local Data?• Do not send it to SSA! They have no need to see it, and it just

adds to their processing load.• You can correct wages, but not taxes, unless it’s an

administrative error (see slide 6, above)

Review: Form W-3c• Form W-3c is required to be filed with any submission of paper

Form(s) W-2c.• Boxes a-e are mandatory; f is optional; g is for correcting

state/local info; h-j depend on circumstance• Review boxes:• Just complete boxes (as reported, as corrected) for anything you

are correcting – this is a summary of all W-2c forms being submitted with this W-3c

Review: Form W-3c, Cont.• Don’t zero-fill other boxes• Box 12a: for deferred compensation, enter only the total of

codes D-H, S, Y, AA, BB and EE; don’t enter code letters• Box 12b: for HIRE exempt wages & tips• Explain decreases: keep it simple. If many different reasons,

use a different W-3c for each batch• “Has an adjustment been made…?” Check a box. If “yes,”

indicate date of Form 941-X on which you take the adjustment.

Form 941-X (effective 1/1/09)• Replaces Form 941c and Form 843• One Form 941-X for each Form 941 that you are correcting• Stand alone form – do not attach to Form 941• Form 941 will no longer have adjustment lines for correcting prior

quarter errors• If correcting both underreported and over reported amounts for

same tax period, use a single Form 941-X to report both

Form 941-X, Cont.• Two processes to choose from: adjustment process or claim

process• Adjustment process is used to apply a credit (over reporting) to

your next Form 941 or reporting an underpayment• Claim process is used to file for a refund• Form and instructions contain a chart and several examples to

help with choosing and completing appropriate process

Form 941-X, Cont.• Deadlines for filing Form 941-X:• If you are correcting an underreported tax, the 941-X must be

filed by the due date of the 941 for the period in which you discover the error

• If you are correcting an over reported tax, the 941-X is due before the period of limitations expires (within 3 years of date 941 was filed or 2 years from date you paid the tax, whichever is later)

• Note: The adjustment process cannot be used in last 90 days of period of limitations – must use claim process and receive refund

Form 941-X, Cont.• Part 3: Just complete boxes (as reported, as corrected, etc.) for

anything you are correcting, don’t zero-fill other boxes• Caution! Be sure to use the appropriate tax rates for the year

being corrected. (6.2% vs. 4.2%)• Part 4 – Explanation: Keep it brief, match W-3c explanation

Where do you get the forms?• Social Security Administration’s Business Services Online • www.socialsecurity.gov/bso/bsowelcome.htm• Create, store, and electronically file with SSA up to 5 forms at a

time• Print copies for employees and state/local filing• But can’t use it for forms correcting only state/local information

• APA’s fill-in-and-print W-2c, W-3c and 941-X • http://www.americanpayroll.org/members/Forms-Pubs/• Fill-in pdf; print out all copies, save paper copies as cannot save

pdf

Form W-2c Checklist• W-2c Checklist:• Employee info• Source error documentation• Correction resolution• Journal entries

Change of Name or SSN• Example: Sheila Fortune• Generally, one W-2c will suffice for multiple years• No need for Form 941-X• Don’t forget you will need a Form W-3c

Refunding Over Collected SS Tax

• Example: Dwight Ellis• Involves Form 941-X• When to complete Form 941-X• If no $ involved, not needed: change of name, SSN, Box 10, Box

12 codes, state or local wages• But if changing federal wages and taxes, do it!

Form 941-X Review• Mandatory: name, FEIN, address, return correcting info, date

error discovered• Period corrected: not the period when you discovered error, but

the period in which the error took place• Review process choices in Part 1• Review certifications in Part 2: depends on circumstances of

correction• Part 3: depends on the taxes being adjusted

Form 941-X, Part 3• Column 1: Correct wages for the period• Column 2: Wages previously reported: from the 941 of the period

being corrected• From W-3c, calculate increase (decrease) in taxable wages

Form 941-X, Part 3, Cont.• Column 3: Difference (Col. 1 minus Col. 2)• Column 4: Tax Correction• For FICA taxes, use rates shown if correcting both employee and

employer share• If correcting employer share of FICA only, use rates noted with

asterisk

Make sure you are using the correct form. Current Version: April 2012

Form 941-X, Part 4• Explanation• Brief, concise• Group like errors together• Use similar explanation as on W-3c

General Ledger Entries• Example: Ellis• A/P Manual check: don’t run it through payroll, or it will affect

current year tax balances on the W-2 (or your system will self-adjust and recollect)

• GL entry for refund check to employee• GL entry for deposit of IRS refund

Reversing Wages From a Check That Was Never Given to Employee

• Example Brian Looney• Involves Form 941-X • Period corrected: not the period when you discovered error, but

the period in which the error took place• Wages previously reported: from the 941 of the period being

corrected• This is considered an administrative error!

Reversing Wages• Example: Looney• From the W-3c, calculate the increase (decrease) in taxable wages• Add/subtract that to/from column 2 to get column 1

General Ledger Entries• Example: Looney• GL entry to back out wages• GL entry to back out deductions you have a chance of getting

back• GL entry to set up receivable for expected tax refunds• GL entries for deposits of tax refunds

Under Reported Wages From a Manual Check• Example Martin McFarland• Involves Form 941-X• Period corrected: not the period when you discovered error, but

the period in which the error took place• Part 2: Check only Line 3 – no refunds involved• Wages previously reported: from the 941 of the period being

corrected• Calculate the increase in taxable wages

Under Reported Wages• Example: McFarland• Add that to column 2 to get column 1• For FICA taxes, use rates shown as correcting both employee and

employer share• Make deposit immediately• GL Entry

Correcting Form 940• Redo the return, making changes as appropriate• Check the “amended return” box, right above Part I• There will definitely be changes in Part I, line 1, and possibly on

other lines.• Unlikely that this will affect tax that is due, unless there was a

change for someone who earned less than $7,000 (FUTA wage base)

State Impact• Revenue (SIT)• Every state is different• Check out your coupon book (amended or corrected annual

recon)• Some states have you use the same form and write “amended”• Check out state rules: call or go to websites• www.americanpayroll.org/states.html

State Impact, Cont.• Unemployment Insurance• Check first if it’s a state that wants gross wages in addition to

taxable wages (If not, and the person exceeded taxable wage base, you don’t have to go any further!)

• Every state is different• Check out what forms the state has for amending a return• Check out state rules: call or go to websites• www.americanpayroll.org/states. html

Questions? Contact Information

• Rosemarie Fraumeni, CPP• rfraumeni@comcast.net• 978-621-0270