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

May 20, 2009

Speakers:
Rosemarie Fraumeni, CPP
Lisa Poole, CPP

Forms W-2C and 941-X Ease Corrections Process

Payroll managers have heard it all when it comes to missing Forms W-2, such as an employee who forgot to say she moved to a different state or the boss who decided to keep a bonus check in a drawer instead of giving it to a worker whose conduct had become unacceptable.

The job often falls to the payroll department to correct these problems because wages and taxes are involved, said Rosemarie Fraumeni, CPP, and Lisa Poole, CPP, who addressed the workshop “From W-2C to 941-X and More” on Wednesday at the 27th annual American Payroll Association Congress in Long Beach, Calif.

To correct Form W-2 errors, the Internal Revenue Service revised Form W-2C in February and introduced a new form, the 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, to replace the Form 941-C, Supporting Statement to Correct Information.

Payroll managers should be especially careful when issuing a replacement W-2 because of the personal taxpayer information on the form, Fraumeni said. There may be legitimate reasons for an employee requesting a replacement, such as relocating without a forwarding address, misplacing the form, or having it mangled in the mail, but there also are less-than-honest reasons. Fraumeni said such a case could involve a soon-to-be divorced spouse who might call the employer to ask for a replacement, hoping to glean salary information that would be useful in support negotiations.

“Be sure it goes to the right person,” Fraumeni said, adding that the form should be mailed. “No fax, no e-mail. Speak only to the employee and then physically put it in the mail.”

If a W-2 is lost, reprint it and indicate at the top of the statement that the form is a reissue. While not required by IRS, this is good business practice, Poole said. Payroll also can charge the employee a fee to issue a replacement or a prior year W-2, which would be reprinted from the source document or a computer disc.

“It’s taxing the resources of your department,” Poole said of the reprinting process. While many companies reissue the W-2 free, she said, others might charge from $5 to $50. “You’d be surprised how quickly they can find the lost W-2 when you tell them of the cost to reprint it,” she said.

Payroll managers should develop a checklist for W-2 corrections and receivables, Poole said, especially in the case of corporate mergers and acquisitions or recession-strapped companies that are short on cash.

“You want someone in the company to know there is a check coming,” she said. “In this day and age with auditing and Sarbanes-Oxley, it’s real important to understand this.”

For corrections to the federal Form 941, Employers Quarterly Tax Return, employers are now to use Form 941-X.

Form 941 also deals with the COBRA health insurance premium subsidy under the American Recovery and Reinvestment Act, which was signed into law in February.  The form was altered for the subsidy program. Lines 12 and 13 were modified so employers can account for total monies withheld and remitted to cover health premium payments instead of withholding taxes. While separate reports will not need to be included on Forms W-2 or the 1099-series forms, employers must retain separate supporting documentation to substantiate a claim on Form 941 for reimbursement.

IRS is planning to issue guidance regarding the reporting of individual COBRA subsidy amounts and how the credit is to be handled for larger employers who file Form 941 for multiple federal employer identification numbers.

In either case, Form W-2C and Form 941-X have improved the corrections process, Fraumeni said, and made it easier for the payroll department.