Ask the expert: Correcting a W-2 mistake

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 line Always show the W-2 amount on your return. Errors can be corrected elsewhere on the return.