Filed severance incorrectly as 1099--how to fix

[PR_LTC]

I owned a small company that went out of business with the last payroll paid at the end of August. One employee was paid a severance payment in May of 2022 as part of a settlement. It was the only money he received in 2022 as he was laid of at the end of 2021. I paid it as a 1099, but just read (I am doing end of the year filings) that it should have been paid as payroll with the appropriate federal taxes withheld. How do I fix this? I will need to pay the payroll taxes due on the amount and a late penalty since the payment was made back in May. I also need to issue the employee a W2 for the payment but since I processed it as a 1099 I don't know how to change it.

[Anonymous_ · Accepted solution]

I believe @Critter-3 has dealt with this scenario previously.

You need to file a corrected 1099 (zero'd out) and then obviously issue the W-2.

Of course, you need to file the payroll statements, withholding, fica (et al), and pay any interest/penalties.