Low-dollar-amount errors that appear on Form W-2 won’t lead to penalties. That’s the official word contained in final regulations from IRS.
The law that prompted the IRS regs? The Protecting Americans from Tax Hikes (PATH) Act of 2015.
Thanks to the PATH Act, errors on Forms W-2 are de minimis if the difference between any single amount reported incorrectly and the correct amount required to be reported doesn’t exceed $100.
As for reporting the amount of tax withheld, though, the de minimis threshold is lower: not more than $25.
If you find errors that fall within those ranges, a safe harbor exception to penalties will help you avoid the headache of making corrections to Form W-2.
Safe harbor for Form W-2
What happens if the person to whom you’re furnishing the Form W-2 would prefer that you make the fixes? The regs allow an employee to make such an election.
But that must be done according to certain standards. That is, the employee must make the election in writing – on paper. The employee should:
- clearly state that the election is being made
- include specific contact info
- identify which payee statements apply, but if none has been identified, the election will apply to all payee statements, and
- provide other info required by IRS.
The employee must make the election before the later of these two dates:
- 30 days after the date on which the payee statement is required to be furnished to the payee, or
- October 15 of the calendar year.
Another reason the safe harbor may not apply is if there’s an intentional disregard of the requirement to file timely correct information returns, IRS explained in the final regs.
The effective date of the final regs was December 19, 2023, the same date as their publication in the Federal Register. Furthermore, the final regs supersede Notice 2017–09 when it comes to information returns that must be filed and payee statements that must be provided on or after January 1, 2024.