I just now received a W-2 from a company that I worked for 3 days as a contractor. I had to leave country for 2 months due to a family emergency. Since the employment duration was very short, I was not paid. I was told that they don't want to charge the client because 3 days is not enough contribution.

Since I had to leave country the same day, I did not argue with them and told it's okay if they feel right.

Now I have a W-2 from them saying they have paid me about $1500. I contacted them but I have not received any reply yet.

I just want to be prepared. What can I do here?

  • Sue them? IRS will want taxes on that, but since you were never paid - there's nothing to tax. You'll have some explaining to do though. – littleadv Feb 1 '13 at 0:06
  • should that not be the last option? There must be some alternatives to fix this. – Asdfg Feb 1 '13 at 0:08
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    well, the alternative is to have a corrected W2 issued that would reflect the situation properly. Since you said you contacted them and that hasn't happened yet, I proposed the alternative. Even if they pay you now, they have to issue a corrected W2 for last year, and a new W2 for this year. They cannot pay retroactively. – littleadv Feb 1 '13 at 0:15
  • @littleadv Doesn't a contractor have to get a 1099? I think there are other problems here. It would be worth investigating if they meant to send anything at all. Corrections will be needed. – MrChrister Feb 1 '13 at 0:46
  • @MrChrister I think the OP works with a contracting firm as an employee. He's placed at clients' sites, but his firm is the contractor, and he is the employee of the firm (considered contractor by the client). That's quite common in software, to the best of my knowledge, probably in other industries as well. But yes, clarifications should be made, and corrections are definitely required. – littleadv Feb 1 '13 at 0:50

As your conversation with littleadv has indicated, the company is in the wrong; you were in fact never paid by this company in 2012, and therefore you should owe no taxes on said zero-dollar payment. The fact that you earned this money is irrelevant; revenue may be recorded when it's earned, but cash is recorded when it's paid.

You should contact the company, first. It's their books that will be out of whack as well; of course in this circumstance because your wages are an expense to them, the fact that they effectively are telling the IRS they paid you that money reduces their taxable profits. So, it will be difficult, on its face, to get the company to own up when it means a bigger tax payment to the IRS.

However, the IRS is your ace in the hole. What they are doing, if it is willful, is tax fraud; they are misrepresenting their accounting to the IRS. Big no-no. The fact that in this case they're only shorting the IRS by about $450 is immaterial; the penalties for willful tax evasion are something like $100,000 per entity charged in the crime (which is the company and anyone in the management chain who the IRS can prove knew, or should have known, about the problem), and a felony conviction with jail time for the human defendants (corporations can't serve jail time, but they can pay extra money). That's worth the IRS's law staffers' time.

So, if the company refuses to fix their mistake, you take it to the IRS. Don't think of it as selling them out, or revenge, or anything like that; you're covering your own backside, plain and simple. If the IRS doesn't know that the company never actually sent you a check, they're unlikely to dig deep enough to figure that out on your own. If, however, you simply omit this W-2 from your own tax return because it's wrong, the government receives their own copy of the W-2 and will match the records they got with the ones you sent in, and they will find the omission, and an auditor will be paying you a visit at which you will now have to prove that you indeed did not receive a paycheck from them (and proving a negative is always hard).

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  • +1 for the irs "will find the omission". It will take at a minimum months for them to discover the omission but they will find it." – mhoran_psprep Feb 1 '13 at 11:15
  • thanks for your reply. I received a reply from the company saying they are making changes and i dont need to worry about the W2 that they sent. Should i ask them to send me a W2 showing 0 amount or is there something else i need to get from them in order to keep a proof that the W2 was issued as an error from their side? – Asdfg Feb 1 '13 at 19:16
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    I would ask for some formal proof of correction. This could be as simple as a signed letter from the HR manager stating that the W-2 was incorrect. Once you have corroboration and a "mea culpa" from the company you can safely ignore it. – KeithS Feb 1 '13 at 19:26
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    The form to correct a W2 is a W2C. irs.gov/pub/irs-pdf/fw2c.pdf – Tangurena Feb 4 '13 at 6:18

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