Severance Pay (Not on W2 and no 1099 Misc)

[GregAllum11]

Hi all

I received severenace pay from my last company, they transferred the full amount direct to my bank and now there is no paperwork. It's not included in their W2 they sent, no 1099Misc.

What is the best way to report this in my tax return? I have put it in the Misc Income not reported on W2/1099 so seems logical but wanted to double-check.

Also what is the repercussions for the employer not reporting this pay - if any?

Thanks, Greg

[VolvoGirl]

Did you ask them?  Are you sure it's not on your W2?  Did they take any taxes out of it?  Oh....when did you get it?  Maybe it will on next years 2022 W2.

[GregAllum11]

Not on W2, it was a significant amount received in April 2022 so was surprised they just direct debited it without withdrawing Fed or State Tax.

If they haven't declared it, where does that leave me?

[JamesG1]

Received April 2021.

What paperwork have you received?  What were you told upon leaving? 

Was there a legal action of some kind?  Was this a distribution from a trust and taxes have already been paid by the trust?

Short of some kind of legal settlement, it sounds like taxable income but you need some direction from the payor.

[GregAllum11]

No legal action. I signed a mutually agreeable severance agreement, was a senior exec at the organization they decided to go a different direction and agreed to pay the equivalent of 3 months salary.

No taxes have been paid on this as it was a direct deposit into my bank account. 

[Opus 17]

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@GregAllum11 wrote:

No legal action. I signed a mutually agreeable severance agreement, was a senior exec at the organization they decided to go a different direction and agreed to pay the equivalent of 3 months salary.

No taxes have been paid on this as it was a direct deposit into my bank account. 

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Severance is required to be on your W-2, and they are required to withhold their share of FICA and medicare tax.

Start by sending a certified letter asking them to issue a corrected W-2.

If they refuse, you can file by reporting this as "income that was not on my W-2 but should have been".  You will pay the employee share of social security and medicare, but not self-employment tax.  You will also owe income tax, of course, and depending on the amount, you might owe a penalty if you did not make an estimated tax payment.

I want to double-check the procedure for adding this type of income so it doesn't double your regular income as well.  I will try to get back to this tomorrow.  

[GregAllum11]

Thank you, really appreciate your support

[Opus 17 · Accepted solution]

How to report severance or other wages that are not reported on your W-2.

1. Go to Miscellaneous Income on the very bottom of the Income page.

2. Select "Other income not already reported on a Form W-2 or Form 1099".

1. Did you receive other wages? Yes.
2. Household employee? Skip.
3. Disability/Sick pay? Skip
4. Other Earned Income? Yes.
5. Source of other earned income? Employee compensation not on a W-2.
6. Info screen. Continue.

1. Enter the employer name

2. Enter only the wages that were not on the W-2. Don't report all your wages, the wording here is misleading.  Only report wages that are not already on your W-2.

3. Enter the employer tax ID (copy from your W-2)

4. Select reason code H.

3. Continue, then Done. 

[GregAllum11]

Thanks Opus, this is all done. Is there any recourse for the company that didn't provide this information or withhold the taxes?

[Opus 17]

@GregAllum11 

If the company refuses to issue a corrected W-2 and you file with this procedure, that will generate a form 8919.  That could trigger an inquiry to the company, although I don’t know if that’s automatic or depends on some person choosing to follow up, so I don’t know if it will actually happen, especially with the IRS still operating under pandemic backlogs.  

[TG6394]

I have a very similar situation. 

In 2018 I Filed a claim with bankruptcy court in New York for unpaid severance when Sears filed bankruptcy in that same year. In 2022, the bankruptcy court honored my claim and paid me what was due. They sent me a letter with a check. The letter stated the gross amount, Fed, Social Security, Medicare and state taxes that were paid and the net amount of the check. I never received a w2 or a 1099-misc. How do I report this on our taxes.

Since I cannot find a way to report taxes paid under the Miscellaneous categories for Income, What I thought about doing was pulling an old Sears W2 and using the TIN / EID number on it (from 2017 W2, prior to bankruptcy). I would then just add another “W2” entry to our taxes with this TIN/EID information and the dollars amounts listed above with the name and address from the letter I received, which was:

Sears Holdings Management Corp

C/O M3 Partners

1700 Broadway 19th Floor

New York, NY 10019

[Opus 17]

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@TG6394 wrote:

I have a very similar situation. 

In 2018 I Filed a claim with bankruptcy court in New York for unpaid severance when Sears filed bankruptcy in that same year. In 2022, the bankruptcy court honored my claim and paid me what was due. They sent me a letter with a check. The letter stated the gross amount, Fed, Social Security, Medicare and state taxes that were paid and the net amount of the check. I never received a w2 or a 1099-misc. How do I report this on our taxes.

Since I cannot find a way to report taxes paid under the Miscellaneous categories for Income, What I thought about doing was pulling an old Sears W2 and using the TIN / EID number on it (from 2017 W2, prior to bankruptcy). I would then just add another “W2” entry to our taxes with this TIN/EID information and the dollars amounts listed above with the name and address from the letter I received, which was:

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You would start by entering your income as if you received a W-2, using the figures provided in the settlement letter.  You can use the old EIN if you can find it.  However, after entering the W-2 there is a listing of special situations and you need to check the box for "I did not get a W-2/I need to create a substitute W-2". 

[TG6394]

Ok, Thank you for the guidance. I must have missed that check box for "I did not get a W-2/I need to create a substitute W-2".  I will go back into TT and pull up the W2 entry and look for it. Thanks again.