Today TaxMama® hears from Nico out in the world, with this tough situation. “Have you ever had a client who never received a W-2 because the company went belly up? I know it is illegal to use the last year’s W-2 to prepare the return. What do you suggest I do?”
Dear Nico,
You bet I’ve seen this. During the decades of working people who had not filed tax returns, I came across this regularly. In fact, this is one of reasons someone becomes a non-filer. They are stumped about how to proceed. Once they don’t file for one year, they are afraid to file for the next year because they didn’t file last year…and a cycle starts.
However, the solution is relatively easy. Especially when you know the trick. There’s even a form for this. Here’s what you do, in two easy steps:
1) Use Form 4852 – Substitute for W-2
https://www.irs.gov/pub/irs-pdf/f4852.pdf
2) Recreate the earnings and withholdings. Here are some ways to do that:
a) Use the final paystub, if your client has it, and it has year-to-date information.
b) If not, you mention the prior year W-2.
If the client worked for the company all year and the income was the same – use that.
c) Or if the client only worked for the company for several months, you
can prorate that 2010 W-2 to reflect the number of days/weeks/or months worked.
d) Or if you know how much the client was earning per hour/week/month, or whatever and can reconstruct earnings and withholding – do that.
Whatever you do to arrive at your computations, just explain your logic to IRS.
You can probably use the same form for the State, now that IRS has added
state withholding fields to the form.
And remember, you can find answers to all kinds of questions about missing W-2s, and other tax issues, free. Where? Where else? At www.TaxMama.com.
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