The IRS has record of him and his social and also other W2's for that year, just not from us. We filed our taxes and everything is fine. His lender is saying that we need to refile his W2. Is this correct? If so, how do I do that?
Did you file your W-2s and W-3 electronically or on paper?
I would start by checking your submission and make sure that this employee's name, address and SSN are correct on your copy of the filed information.
I really don't know whether you should send an entire new filing, or just send a W-2C to the IRS and the employee (that way you get it in the system without it being a duplicate), or just send an original W-2. You don't want the IRS to suddenly go from thinking there is no W-2 to thinking there are two with twice as much income.
You might want to ask an enrolled agent for advice, or try calling the IRS yourself.
My gut feeling is to send this employee and the IRS a W-2C.
Meanwhile, the employee should be able to send the bank a copy of the W-2 even if the IRS transcript doesn't match it. The bank may also accept a certified letter from you as income verification.
If the IRS has reason to question W-2 income or tax withholding information embedded in an individual's e-filed tax return, the IRS usually asks to the individual to provide a copy of the W-2 that the individual received from the employer.
A lender does not need a W-2. What they want, is a copy of the 2016 tax return. So the prospective borrower just needs to print out their 2016 return and sign it. If married the spouse needs to sign it to. Then that's what gets provided to the lender.