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

1. Correcting a W-2: From W-2c to 941-X and More Maine Association of Payroll Professionals Date: November 30, 2012 Presented By: Rosemarie Fraumeni, CPP

2. 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

3. 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!

4. 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)

5. 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

6. 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”

7. 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

8. 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)

9. 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

10. 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.

11. 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

12. 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

13. 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

14. 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

15. 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

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

17. 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

18. 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!

19. 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

20. 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

21. 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

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

23. 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

24. 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!

25. 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

26. 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

27. 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

28. 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

29. 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)

30. 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

31. 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

32. Questions? Contact Information • Rosemarie Fraumeni, CPP • rfraumeni@comcast.net • 978-621-0270