Differences in federal taxes for W2c. Which do I report

[michaelme]

Hey everyone, I’ve got a bit of a tax question I’m hoping someone here can help with.

In 2024, my wife was accidentally overpaid by her employer. The error wasn’t discovered until 2025, so they issued a corrected W-2 (a W-2C) to reflect her actual income. Because she had already paid federal income tax, Social Security, and Medicare on the original (higher) amount, the correction impacted the taxes reported.

From what I understand, the IRS does refund both the employer and employee portions of Medicare and Social Security taxes back to the payroll company. However, my concern is around how this gets handled on our end with the 1040.

If I use the corrected W-2C numbers when filing, it won’t reflect the higher amount of federal and state income tax that was actually withheld and sent to the IRS and state in 2024. So I’m worried the IRS won’t know there was an overpayment to begin with—and therefore won’t issue any refund for it.

The Question:  Should she use the original W-2 numbers for reporting federal and state income tax paid, but use the W-2C (corrected) numbers for everything else, like wages, Social Security, and Medicare?

That seems a little strange.  Will it ensure the IRS sees the full picture and can refund the overpaid taxes?

 Appreciate any insight—thanks so much!

[ThomasM125]

You should use the corrected W-2 numbers on your tax return. The excess taxes will be returned to your employer when the corrected payroll forms are submitted by your employer. So, the IRS will find out about the excess when your employer submits the corrected W-2 form and associated payroll tax returns. Then, your employer will have to reimburse you for the excess taxes you paid in.

[michaelme]

Thank you, Thomas, for your reply.

I asked our payroll provider and they said only the Medicare and SS taxes come back.  I have read this in other areas as well. 

Do you think our payroll company, Gusto, is in error with their information to me?

Thanks,

Michael 

[JohnB5677]

The payroll company is correct that only the Medicare and Social Security will come back.

• The W-2C Income should be less because it was paid back to the company.
• However,  the taxes withheld should be the same.
• Any federal or state refunds would be processed on your tax return.

[michaelme]

Thank you very much!

Indeed, the W2C is less for SS and Medicaid, but is also less for fed and state.

Is that a mistake of the payroll company?  Should the W2 and W2c show the same amount for Fed and State taxes maybe?

Thanks,

Michael 

[BrittanyS]

It depends on the correction made.  The W2c could be less in Federal and State taxes if they incorrectly reported the federal and state taxes.  If the only change that should have occured was the medicare and social security tax then it would be an error on teh payroll company and it would need to be revised again.  

@michaelme 

[michaelme]

Thank you.

The W2C is for sure less than the original W2 and thus the Fed and State taxes she paid are higher than what is reflected on the W2C.  

I worry that if I use the W2C withholdings (which are less than actual), she will never see that money.  Or will the feds and state figure it out on their own and send it back to her?

Thanks,

Michael 

[BillM223]

Thomas answered your question in the first post:

You should use the corrected W-2 numbers on your tax return. The excess taxes will be returned to your employer when the corrected payroll forms are submitted by your employer. So, the IRS will find out about the excess when your employer submits the corrected W-2 form and associated payroll tax returns. Then, your employer will have to reimburse you for the excess taxes you paid in.

[michaelme]

Thank you for your thoughts.

My understanding from this forum, my research, and my payroll company is that the Fed and State taxes are not returned to the payroll provider; only the SS and Medicare are.

This is where I don't have clarification on how to file.  Any additional thoughts?

Thank you for your ideas!

Michael