Pursuant to IRS Rules and Regulations, when an employee repays an employer for wages received in error in a prior year, those wages remain subject to Federal income tax for that year.* A Form W-2c for the prior year must be issued but the amount of Wages, Tips and Other Compensation (Box 1) is not to be adjusted. Social Security and Medicare Wages (Boxes 3 and 5) will be decreased to reflect this repayment.
The amount repaid for wages from a prior year, submitted through an AC 230, will not result in a reduction of the Federal wages reported in Box 1 of the W-2 that will be issued in the current year. A Credit Statement will be issued to the employee for use in filing their current year Federal income tax return.
*Rare exceptions may apply.
Note: Prior year repayments that are collected through the OVP process are not covered by this bulletin. Additional information will be provided in a future bulletin.