Ask the Expert: Correcting a mistaken W-2

When I retired a few months ago, an error was made on my final paycheck. While employed, I had enrolled to contribute an amount equal to my dental insurance premium into a flexible spending account. My employer mistakenly deducted a larger amount from my earnings. I requested a refund; instead, I received a payroll check for additional earnings in the amount of the error. I'm concerned because now my W-2 will overstate my earnings. I asked the company to correct this. I haven't received a response.

It doesn't sound like you'll have a problem. But you've raised a good question. What should you do when your W-2 form or 1099 overstates the income you received?

First, let's address your situation. The flexible spending account (FSA) contributions that were deducted from your salary aren't subject to income tax or FICA taxes. For example, if you earned $60,000 and the correct FSA deduction was $1,850, your W-2 would show $58,150 of taxable income. Let's say by mistake the company deducted $2,500, which would cut your taxable income to $57,500. They fixed their mistake by issuing a paycheck that adds $650 back into your taxable earnings. That should result in a correct W-2, says Barry C. Picker, a Brooklyn CPA and financial adviser.

But what if a mistaken W-2 isn't corrected? Your tax return and W-2 must agree or the IRS computer will flag the inconsistency. To file a correct return without upsetting the computer, Picker says, "List the W-2 amount on the 'Income' line of your return, and subtract the amount of the error on the 'Other Income' line." You can include an explanatory note with the return.

The bottom lineAlways show the W-2 amount on your return. Errors can be corrected elsewhere on the return.

Websites with more information 1.usa.gov/w3pSlR and bit.ly/vOUeXu