STATE OF CONNECTICUT
NANCY WYMAN COMPTROLLER	OFFICE OF THE STATE COMPTROLLER 55 ELM STREET HARTFORD, CONNECTICUT 06106-1775	MARK OJAKIAN DEPUTY COMPTROLLER

MEMORANDUM NO. 2001-19

March 16, 2001

TO THE HEADS OF ALL STATE AGENCIES

I. PURPOSE

The purpose of this memorandum is to remind agencies of the necessity of notifying the Payroll Services Division when an employee makes a repayment of wages.

II. AUTHORITY

In accordance with Internal Revenue Service (IRS) Publication 15, Circular E, Employer's Tax Guide.

III. AGENCY RESPONSIBILITIES

Agencies must provide proper documentation to the Payroll Services Division promptly upon the repayment by an employee of an overpayment of wages. This will assist the Payroll Services Division with their reporting responsibilities.

In addition, agencies must provide a statement to an employee making a repayment of prior year wages showing the amount of repayment, the date repaid and for what year the amount was included on the W-2. Agencies must send a copy of this statement to the Payroll Services Division.

IV. PAYROLL SERVICES REPORTING RESPONSIBILITIES

A. Repayment of Current Year Wages

 

For repayments of wages paid during a prior quarter in the current year, the Payroll Services Division will report the adjustments on Form 941 to recover income tax withholding and Social Security and Medicare taxes. The Payroll Services Division will report the adjustments on Form 941 for the quarter during which the repayment occurred.

B. Repayment of Prior Year Wages

 

For repayments of wages paid during a prior year, the Payroll Services Division will report the adjustment on Form 941 for the quarter during which the repayment was made to recover Social Security and Medicare taxes. An adjustment will not be made for income tax withholding because the wages were paid during the prior year.

 

The Payroll Services Division will file Forms W-2c and W-3c with the Social Security Administration to correct Social Security and Medicare wages and taxes. The Payroll Services Division will not be correcting wages in box 1 on Form W-2c or income tax withholding for the amount paid in error. The Payroll Services Division will provide a copy of the W-2c to the employee.

 

NOTE: Wages paid in error in a prior year remain taxable to the employee for that year. This is because the employee received and had use of those funds during that year. The employee is not entitled to file an amended return (Form 1040X) to recover the income tax on these wages. However, the employee is entitled to a deduction (or credit) for the repaid wages on his or her income tax return for the year of repayment. Employees should be directed to IRS Publication 525, "Taxable and Nontaxable Income", for information on how to claim the deduction or credit. Publication 525 can be accessed on the IRS website www.irs.gov, ordered by calling the IRS forms number 1-800-829-3676, or picked up at an IRS office.

V. GENERAL

Please direct all questions or requests for assistance regarding this memorandum to the Comptroller's Payroll Services Division at (860) 702-3456.

NANCY WYMAN

STATE COMPTROLLER

NW:CH

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