KEEP COPIES OF YOUR W-2s FOREVER!

For years now, when asked by clients or readers, “How long should I keep my tax records?” I have recommended that you keep the copy of your actual Form 1040 (or 1040A) with all attached forms and schedules forever. 

 

My reasons - your 1040s provide a permanent record of your financial history, and you never know when the information on a prior year’s tax return will come in handy for a variety of tax or financial related reasons, or just to satisfy personal curiosity.

I now add to this advice also keep copies of all your W-2s forever.

Just the other day a long-time client asked me if I had copies of his wife’s 1998 and 1999 Form W-2s.  He had not saved them, and needed the forms for an issue with his wife’s employer, who had lost their records for past years in a flood and did not have back-up copies stored elsewhere.  While I have copies of his 1040s back to the mid-70s, I did not have a copy of the needed W-2s.  Back then I was not keeping copies of W-2s and other information returns. 

FYI, I did start making copies of at least W-2s and 1099-Rs to attach to my copy of client returns in the early 2000’s.

During the tax filing season I came across a situation where a client, a retired municipal police officer, took a distribution from his deferred compensation account.  The distribution was fully taxable on the federal return, as employee contributions were “pre-tax”.  But for NJ state income tax purposes employee contributions were not “pre-tax”, so he had a “basis” in the account and at least some of the distribution would be considered a tax-free return of contributions.

I told the client to call the account trustee and ask for the total amount of employee contributions to the plan over the term of his employment.  However, because the trustee had changed several times over the years, information was only available for contributions made since 2000.  The client, who first came to me in the early 2000’s, had joined the police force in the 1980s. 

The trustee told my client to get the information for the years before 2000 from his W-2s.  Client contributions to retirement plans are usually reported in Box 12 or Box 14 of Form W-2.  Of course the client did not have copies of all his W-2s going back that far, nor had he kept copies of all of the year-end account statements.

So you see, you never know when you will need the information reported on a Form W-2. 

 

I provided the client looking for his wife's W-2s with the information I found on the IRS website -

 

"The IRS does not retain actual copies of Form W-2 except as an attachment to your tax return, for prior years. However, the IRS maintains (and will provide free of charge) Form W-2 information for any purpose for the past ten processing years. Use Form 4506-T (PDF), Request for Transcript of Tax Return, to request Form W-2 information. The only way to get an actual copy of your Form W-2 from the IRS is to order a copy of the entire return on Form 4506 (PDF), Request for Copy of Tax Return, and pay a fee of $50.00 for each return requested."

 

So the bottom line - keep copies of all your W-2s forever.

TTFN

YOUR W-2s AND 1099s

You should start to receive your 2010 information returns (W-2, 1099, 1098) within the next few weeks. Most of these forms must be mailed out to you by January 31, 2011, although some 1099 forms have until mid-February to get them in the mail.

If you have not received all your W-2s, 1098 and 1099s for bank interest and non-employee compensation by February 6th, or other information returns by February 20th, contact the employer, bank, broker, or whoever and arrange to receive a duplicate copy.

And, to repeat what I tell you each year at this time, taxpayers with brokerage accounts will probably receive at least one “Corrected” 1099 statement. These corrected statements often do not arrive until March. It would be a good idea to wait a few weeks after receiving the original 1099 information before having your return prepared. You may want to contact your broker and ask him or her if and when any corrected statements will be sent out.

When you receive your W-2s for 2010 you should carefully compare the gross federal and state wages, federal, state and local income tax withheld, and Social Security and Medicare taxes withheld numbers on your W-2s to the amounts on your pay stubs or other records. Also verify that the Social Security numbers on the forms are correct. If you find an error or discrepancy, contact the appropriate employer or financial institution for an explanation or a corrected copy.

If the federal and state wages are not the same I always attempt to reconcile the numbers. My home state of New Jersey does not allow a deduction from state wages for contributions to pension or deferred compensation plans other than a 401(k), or for employee contributions to flexible spending accounts for insurance premiums, medical expenses and dependent care. Third-party disability pay, which is usually at least partially taxable for federal purposes, is exempt from NJ state income tax and will not be included in the state wages amount.

You should also check to see if the box for “Retirement Plan” in Box 13 is “x-ed”. If it is, and you were NOT an active participant in an “employer plan” during 2010, you should contact the employer immediately and request that a corrected copy be issued to both you and the Social Security Administration. Your participation in an employer plan can affect the deductibility of any traditional IRA contributions you may make for the year.

This advice is especially important for trade union employees. I refer you to the situation discussed in my post A TRUE STORY. This issue was eventually resolved when the taxpayer was able to get the “offending” employers to reissue a corrected W-2 (via W-3c and W-2c).

If you do not receive a W-2 from a job you had in 2010 and you cannot contact the employer because it has gone out of business or disappeared all is not lost. You can use your pay stubs or other records to reconstruct the various items of income and withholding and file Form 4852 “Substitute for Form W-2 Wage and Tax Statement” with your federal and state tax returns. In such a situation I recommend that you consult a tax professional.

You should do the same with 1099s you receive. Check the income reported on these returns to your own records, and make sure that, if interest for several accounts are included on one Form 1099-INT, all the accounts listed actually belong to you.

A word to the wise – just because you have not received a Form 1099 does not mean that you do not have to report the income. If income is taxable it is taxable whether or not you receive a Form 1099. And just because you have not received a Form 1099 does not mean that one has not been issued. The form could have gotten lost in the mail or sent to an old or wrong address. But while your copy was lost chances are that the one sent to the IRS made it.

Here is another heads up - Insurance and telephone company dividend checks mailed out in December or January often have a Form 1099-DIV attached. Do not separate the check and throw out the 1099-DIV by mistake thinking it is merely a check stub. Also check any 1099-DIV you receive from an insurance or telephone company to see if there is a dividend check attached. I can’t tell you how many times I have found checks attached to 1099s given to me by clients at tax time.

And finally, according to Internal Revenue Service Revenue Ruling 69-184 you cannot be both a partner in and an employee of the same partnership. A partner cannot receive a salary from the partnership, and should not be given a W-2. If you are a partner who received “guaranteed payments” in 2010 but you receive a 2008 Form W-2 from the partnership you should go to the partnership’s accounting firm and tell them that they goofed.

TTFN

SOME LAST MINUTE ADVICE

Most of you should have received all of your 2007 Form W-2s by now – though employers still have three days to get them to you.

If you don’t have all your W-2s in your hand by “end of business” on Friday you should call the Payroll or “Human Resources” Department of the employer and ask for a duplicate.

If you do not receive a W-2 from an employer and you cannot contact the employer because it has gone out of business or disappeared all is not lost. You can use your paystubs or other records to reconstruct the various items of income and withholding and file Form 4852 “Substitute for Form W-2 Wage and Tax Statement” with your federal and state tax returns. In such a situation I recommend that you consult a tax professional.

You also should receive all 1099s for bank interest, stock dividends, and non-employee compensation by Friday. A word to the wise – just because you have not received a Form 1099 does not mean that you do not have to report the income. If income is taxable it is taxable whether or not you receive a Form 1099. And just because you have not received a Form 1099 does not mean that the “payee” has not issued one. The form could have gotten lost in the mails. But while your copy was lost chances are that the one sent to the IRS made it.