We discovered a payroll check from Dec 2015 that was voided Jan 2016. The W-2 now has a negative Federal Tax and State Tax amount. The Gross Earnings, Fica, Medi, etc. are all correct. The employee has been working part time and made enough to compensate for the negatives in all areas except Federal and State taxes. According to the General Instructions for W-2's and W-2C's you only file a Form W-2C if the Social Security and Medicare Wages need correcting. It says do not correct Federal income tax withheld. I am not sure what the best way to handle this is. Thanking you in advance for any help or guidance you can give.
A payment from a prior year that’s voided in the current year must not adjust the current year’s wages and taxes. The prior year’s adjustments must be made through a correction to the W-2 by a W-2C. You’re correct when you said a W-2C can’t correct a prior year’s federal income tax, but that’s only when the funds were actually received by the employee in the prior year.
The W-2C instructions say when the adjustment is the result of an administrative error, you can adjust the federal wages and taxes withheld. It also says an administrative error occurs only if the amount you entered in box 2 of the incorrect Form W-2 was not the amount you actually withheld. So you can fix your administrative error by filing a W-2C for last year’s incorrect W-2 and by not making any adjustments this year as a result of the voided check.
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"Ask APA" Explores a Tricky W-2C Situation