The income that your employer reports to the Internal Revenue Service is a very serious matter. Unfortunately, sometimes that reported income number is grossly inaccurate. This inaccuracy can result in you paying too much income tax to the government or, even worse, paying too little and being fined for underpayment by the IRS.
If your employer sends you a W2 or 1099 that you believe in inaccurate, getting the matter resolved quickly is critically important to avoiding tax problems with the IRS later.
Steps To Take If Employer Incorrectly Reports Income to IRS
Here are five steps to take if your income is reported to the IRS incorrectly.
Request a New W2 or 1099
First, the IRS encourages you to essentially resolve this with your employer. You can request a new W2 or 1099 in writing from your employer. Explain why you believe the income that was reported to the government is incorrect.
Gather Supporting Documentation
You will need to have proper documentation to back up your case should you not receive an updated, correct W2 or 1099 from your employer. Gather bank statements and pay stubs for the amounts that were paid to you throughout the tax year. Make several copies, and double check your math so you know you have an accurate income number.
File Form 4852 with the IRS
If your employer does not respond to your request for a new W2 or 1099, or if they respond slowly and you need to file your taxes, you can use Form 4852 from the IRS website with your taxes. The form is designed to be a substitute form for various types of income reports that are sent to the government. You fill it out with your information, the employer’s information, and then all of the various W2 or 1099 lines (wages, tips, and other compensation, social security wages, etc.). You must also describe your efforts in obtaining a new, correct W2 or 1099 from the employer.
This is where your documentation becomes helpful. Be sure to include what specific steps you took, dates you sent emails or letters to your employer, and your gathered financial documentation showing the information you are submitting as correct.
File Your Taxes
From there, simply file your taxes using Form 1040 (or whichever 1040 form you use), and make sure you attached Form 4852 with your financial documentation that shows it is valid.
After that you may not hear anything from the IRS. They make look at your documentation, note its validity, and accept your tax return.
However, you should be prepared to be as responsive as possible. The IRS will often have an agent reach out to you to review your return and ask some follow up questions on your documentation. This is normal and shouldn’t be cause for anxiety. The IRS is especially friendly to individuals that help root out employers that are overstating their expenses to reduce their own tax liability. Be friendly, be responsive, and expect everything to be fine on your end.