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Payroll Overpayments: What are W-2c and W-3c and their purpose?

Payroll overpayments are common, they can happen even in highly sophisticated and well-managed departments. A common cause of overpayments is an error in calculation, an incorrect payment process, or a miscommunication regarding payment terms. A major problem with overpayment is that it can result in financial and administrative burdens for the parties involved. 

The employee or employer must notify the other party as soon as possible, and take the necessary action in accordance with state rules and regulations, to fix the issue because failure to do so may result in future taxation issues for both parties. The two forms that you need to use in order to report an overpayment, are W-2c and W-3c forms.

W-2c and W-3c: what are they and what are they used for?

“W-2c” is also referred to as the “Corrected Wage and Tax Statement.” And  “W-3c” often referred to as “Transmittal of Updated Wage and Tax Statements,” is used in conjunction with the W-2c forms to send all corrected W-2c forms to the Social Security Administration and the Internal Revenue Service.

W-2c and W-3c forms are used to correct errors on an employee’s W-2 form, which reports their wages and taxes withheld. It happens when an employee receives more than he or she should, through wages, tips, commissions, or other compensation. It is important to note that if an employee is overpaid by their employer and the overpayment was reported on the W-2 form, the employer may need to use the forms W-2c and W-3c in order to correct the error. Both forms should be filed electronically with the Social Security Administration (SSA) and the Internal Revenue Service (IRS).

In order to correct the error, the employer must first determine the amount of the overpayment and the tax year in which it occurred. The employer should then complete a W-2c form for every tax year that needs to be corrected, as well as a W-3c form to summarize all corrections. It is the employer’s responsibility to send a copy of the corrected W-2c forms to the employee and to the Social Security Administration, as well as to file the W-3c form with the SSA.

The W-2c and W-3c forms give the employer a way to fix mistakes on the original W-2 form without having to issue a completely new form. By doing so, confusion can be avoided. The W-2c and W-3c forms give the employee a chance to make sure that the SSA and IRS receive accurate information about their wages and taxes withheld. This helps to guarantee that the employee’s tax return is accurate as well as that the employee’s social security benefits are computed accurately.

End note

Use W-2c or W-3c forms to report an overpayment to an employee and the Social Security Administration. If you are an employer, legal professional, or accountant, you should consult the instructions provided by the SSA to ensure that you complete the forms correctly. If you need proper assistance, check out the webinar on the Compliance Prime website. 

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