W-2 missing nonqualified deferred compensation: How to fix in TT?

[Joke99]

I terminated from my old employer in 2021, and received a payout of a portion of my deferred compensation. I have done the math from my paystubs and my non-qual def comp payout, and I can see that the employer did not include the payout in my Box 1 earnings.

I know that deferred comp is taxable, and I assume it should've been reported in box 1 (i.e. that the employer made an error). I paid SS & Medicare tax on the DC in prior years when as it was being deferred, so I believe it's not supposed to be included in box 3 or 5.

I'm trying to fix this in TurboTax, and I thought the interview question for "Nonqualifed pension plan not on my W-2" would be my solution. I clicked the box and entered the amount, but it didn't get added to my taxable income.

I guess it's not adding the income, just adding a label to the W-2 that a portion of the income is NQDC. How do I actually fix this so the income gets added to my taxable income?

[rjs · Accepted solution]

You are correct that the deferred compensation is supposed to be included in box 1 of your W-2. The best solution is to get a corrected W-2 from the employer. You might want to first review your calculations with the payroll department to make sure that the W-2 is really wrong.

If the employer will not correct the W-2, you can use a substitute W-2, Form 4852, to enter the correct information in your tax return. When you enter the W-2 in TurboTax, enter the correct amount in box 1 instead of the amount that's on the W-2. Then, on the "uncommon situations" screen, check the box for "Didn't get a W-2" (even though that's not your situation). Do not check the box for "Nonqualified pension plan." The next screen will ask if you want to complete Form 4852. Select Yes. Proceed through the screens, entering the requested information to complete Form 4852. It will ask you to enter explanations of what you did to try to get a correct W-2 from your employer, and how you calculated the amounts that you entered. The prompts on most of the TurboTax screens assume that you didn't get a W-2 at all, but when you look at the form itself you will see that it is also used when you cannot get a corrected W-2 from your employer.

[rjs]

Did they pay the deferred compensation in 2021? If they paid it in 2022, it has to be reported on your 2022 tax return, not your 2021 return. If it was paid in 2022 you should get a 2022 W-2 for it in January 2023.

[Joke99]

Thanks!

Yes, it was paid in Dec 2021. It's odd because they included the lump sum payout from the nonqualified pension plan, just not the portion of my nq deferred comp I received.

I do plan on calling them, that's good advice, but I've tied out the numbers exactly and it's just not there so I expect it's a they-need-to-fix-it situation. It's odd because they included the lump sum payout from the nonqualified pension plan (I'm both the Box 1 total and as a line item in Box 11),  just not the portion of my nq deferred comp I received. Of course, they have different administrators (different websites) for the two programs, so a lack of consistency between the two isn't too surprising.