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William Perez

Incorrect W2: What to Do?

By March 1, 2006

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Today's tax question comes from M. Sullivan in Texas. He asks, "The wages that my employer reported on the W-2 is not correct. My employer has filed bankruptcy and does not have an office staff to correct the W2. He has reported less wages than what I think i made, I can prove by getting copies of my checks from my bank. I have told him that he is wrong, and he told me to try filing with the W2 he sent. I have tried it both ways, if i file with his W2 i get more of a refund because he shows me earning less..... He says that the irs can not do anything becuase 'the doors to the business are closed forever, and if the IRS comes back it will come back to him and not me, because he has filed bankruptcy.' What would you do? If I file accpeting his W2 i get more of a refund, but if i file what I think is right, i get less. Can the IRS come back on me?"

The first thing we should ask is what are the dollar amounts we are talking about. Very often, amounts shown on Form W-2 are slightly different than amounts reported on the final paystub of the year. That's because the W-2 might have adjustments in taxable income or tax-free benefits. Eva Rosenberg recently discussed various reasons why W-2 amounts might be different in her article: W-2 Goof.

This doesn't sound like a normal accounting discrepancy. It sounds like the employer is trying to hide W2 income from the IRS. That's not a good thing. In fact, the IRS would love to hear about it.

You should contact the Internal Revenue Service to file a complaint. The IRS will investigate the matter directly with your employer. You can call the IRS toll-free at 1-800-829-1040.

There may be an easier way to solve the problem. According to IRS spokesperson Jesse Weller, "When a former employer has gone bankrupt it is sometimes possible for the employee to follow up directly with the bankruptcy court. This would be done to have the bankruptcy trustee provide a corrected W-2 to the employee, rather than the employee having to use a substitute W-2 (Form 4852). If that isn't possible, then [filing Form] 4852 is the best option."

So here's what I suggest you do. Contact the Bankruptcy Court in your area. Call the court, and ask how you can contact the trustee overseeing the bankruptcy case for your previous employer. Contact the trustee and explain the situation.

If that doesn't work out, follow the instructions found on the IRS Web site for reporting an incorrect W-2. (Scroll down to the question, "I received an incorrect W-2 form.") You will need to report what you think was the correct amount of pay using IRS Form 4852, Substitute for Form W-2. Here's the link to download the form as a PDF document. You will need to use your paystubs when using this form.

Be aware, the IRS might take longer to process your tax return. The Service will verify the amounts on Form 4852, and contact you with any questions.

Because this is an unusual tax situation, you may want to find an accountant to help you. You should be looking for an enrolled agent, certified public accountant, or tax attorney. These are the only professionals who can talk to the IRS on your behalf without you being physically present.

Preparing an accurate tax return can be tough, and the IRS will be willing to help you investigate this matter. "I applaud the questioner for wanting to do the right thing and file an accurate return even though it may not be to his or her benefit," said Jesse Weller. The IRS does take notice of taxpayers doing the right thing, and often IRS agents will go out of their way to provide valuable help. But you will need to help the IRS too. Keep copies of your paystubs in a safe place. That way, you can quickly provide the IRS with any additional information they would need to complete their investigation.

Throughout the tax season I will be answering one tax question per day. Do you have a question? Visit the Ask a Tax Question page. Disagree with my answers? Post your comments in the Tax Forum.

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