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Tax Mistakes: What To Do When Your 1099 or W-2 is Wrong

Written by Eva Rosenberg on May 28, 2013 in Tax  |   18 comments

Have you ever received an incorrect W-2 or 1099? Scary, isn’t it? You know you have to file taxes, but you’re nervous about giving incorrect information to the IRS. Then, when you call the person or company issuing your tax forms, he or she may…

tax mistakes filing taxesHave you ever received an incorrect W-2 or 1099? Scary, isn’t it? You know you have to file taxes, but you’re nervous about giving incorrect information to the IRS. Then, when you call the person or company issuing your tax forms, he or she may refuse to change the forms—or cooperate with you at all.

Tax mistakes like these are a headache, but the IRS will be looking for those numbers on your tax return.

So what do you do?

The answer is quite easy, really. Report everything exactly the way the W-2 or 1099 says it is, right or wrong. Period. That will make the IRS’s computer happy and make it less likely that you’ll receive any discrepancy notices in the mail.

Filing taxes with an incorrect W-2 or 1099

When the total income listed on all of your tax forms is lower than the income you reported, you may not have to worry about it.

But if the W-2 or 1099 incorrectly shows your total income as more than you actually made, you will need to fix the problem. After all, you don’t want to pay taxes on money you didn’t make.

So, what’s the next step? This is also easy. Deduct the difference between the amount reported on the W-2 or 1099 and the amount that should have been listed on the forms.

Quite often, when you deduct the incorrect amount, you will have to include a detailed, written explanation. This might force you to file a tax return on paper instead of online.

For example, let’s say that you received a 1099-MISC for your business that shows an income of $1,000, but it should only show $750. You would simply enter $1,000 as your income on your Schedule C. Then on page 2 of the Schedule C, deduct $250—the difference between what the tax form is reporting and the amount you actually made—with the notation “1099-MISC was overstated.” Naturally, if there is a large difference, you will need to include more detail. In that case, the notation should read, “See statement attached.”

If the income was from a rental property, follow the same process with your Schedule E, Simply deduct the erroneous amount on one of the blank expense lines and add one of the notations mentioned above.

Incorrectly reported dividends or interest

One of the most common problems that occurs with 1099s for dividends or interest is that part of the income reported belongs to another family member or friend. The report has your name listed first, so you receive the form, but not all the income belongs to you.

How does this happen? Here’s one scenario: A family member names you on a savings account that earns interest. The bank accidentally names you as the primary account holder, and you receive the 1099 for the interest income earned. This is referred to as “nominee income”—the interest income of a different individual.

To rectify the situation, report the full income amount on your Schedule B. On the next blank line, write: “Nominee income: See statement attached.” On the attached statement, list the name, address, and Social Security number of the person to whom an amount should be allocated—and list his or her share of the income.

This is a big and complex issue, and there are many types of errors that can occur. If you get a notice from the IRS, send back a letter explaining why the 1099 was wrong and provide as much proof as possible. If there is a lot of money at stake, or if you aren’t comfortable handling the situation on your own, you may want to consult a tax pro.

Eva Rosenberg, EA is the publisher of TaxMama.com, where your tax questions are answered. She is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy athttp://www.cpelink.com/teamtaxmama.


  1. Kenny says:

    What if the 1099 is lower than what the client actually paid you. For example, the 1099 says $59,000. but you made $71,000.

  2. Todd Fields says:

    What if the Tax payer number was wrong. The company issuing the 10-99 used my social security number when they should have used the company’s EIN to report the income. I didn’t even know about the 10-99 until the IRS notified me that I understated my taxes in 2008 because they received a 10-99 saying I received income. I never received the income, it was paid to a company I assisted in setting up. Now the IRS is billing me for unpaid taxes. The issuing company will not correct the 10-99. What do I do?Type Here

  3. Marilyn Kitt says:

    What if the “service date” was wrong? I don’t even know what year someone did it but for the last several years the “service date” for my rental is 1990 and it wasn’t even built until 1991 and I lived in it till 1999, which is my “service date”. It won’t change my tax return now, however, I was thinking about sending the IRS a certified letter explaining of the typo and how it will affect my future tax returns. Do you know what address to send the letter to and isn’t that a good idea to change it now before it gets to be a problem in about 5 years?

  4. david timote says:

    What if my 1099 is 7K higher than what, I actually made. Can I just file what I have made for the year. The company that issued my 1099 refuses to fix the problem. And I don’t want to pay taxes on income that I didn’t recieve. I have all my bank statements showing what was deposited in the past year.

    I am grateful for any advice.

    • Duffy Lewis says:

      I have the same problem. I look forward to reading an expert opinion.

    • EFX Moderator_KB says:

      David, thanks for posting. You should deduct the difference between the amount reported on your 1099 and the amount that should have been listed on the forms. It is likely that when you deduct the incorrect amount, you will have to include a detailed, written explanation. This might force you to file a tax return on paper instead of online. I hope this helps.

      • Dave says:

        I received nothing for work I did But got a 1099 Misc for the entire amount I was supposed to get. What is the recourse for this.

  5. Bunko says:

    I worked full-time for 1 month in Jan 2012 (W-2) before being laid off. Was rehired as a consultant (1099-MISC) for about 4 months. I’ve just been notified of a discrepancy in my taxable wages by the IRS. Apparently, my previous employer had converted me to a full W-2. I never received an amended W-2. The taxable wages on the amended W-2 was increased by the exact amount that was on the 1099-MISC. However, no amendment to zero out the 1099-MISC was filed to reflect this change. Hence, the amount is being double-counted. I’ve been notified that I owe taxes (plus penalty and interest) on that double-counted amount.
    Would greatly appreciate your opinion/advice on this.

    • Eva Rosenberg says:

      Hi Bunko,
      First, call the IRS and explain.
      That will probably clear up the issue.
      Then, send the IRS a letter showing that the difference IS exactly that amount and just confirm the conversation you had with – IRS person – name, ID#, date and time.
      You should be fine.
      BUT, I would want to see a copy of that revised W-2. Either ask the company for a copy or ask IRS. You can also use Form 4506-T to get a copy for free.
      See if there is any difference in withholding, or how it affects your state return.

  6. DMW says:

    My son received a 1099 misc for 2013, however it had 2 other employees wages added to it. Found out later that my son was getting the checks in his name because he had a bank account and could cash the check. His 1099 says that he was self employed as a supervisor which is incorrect. His father claimed him on his taxes as a dependent and now his college is saying that he cannot get his Pell Grant until he files. We have tried contacting to company and have gotten no help in this. They have said it is not they’re problem and now my son is left paying for his supervisors taxes. I really feel that this company knowingly screwed him over and I just have no idea where to go with this. Any help would be appreciated.

    • Eva Rosenberg says:

      Dear DMW,

      I am so sorry that I didn’t see your post sooner.

      Your son tried to do something generous for his friends and instructed the company to pay him. In their records, they do show him getting all the money.

      HE needs to file 1099-MISC to his friends, showing how much he paid them.
      AND he should never do this again.

      He needs to file a tax return with a Schedule C, showing all the income on that 1099-MISC. He can deduct his payments to his friends, after he issues those 1099-MISCs to them. …

      He can still take advantage of the Form 8919 treatment, but it will be a little complicated. He’d have to end up zeroing out the profit on the Schedule C and moving the profit to Substitute for W-2 that shows only his share of the income. You will need a tax pro to help him file this all properly.

      And when he files his tax return, he cannot get his own exemption, since he is a dependent on his Dad’s return.

  7. sj says:

    What do I do if a 1099 was reported by someone I never worked for? I worked for them in 2005 &2006 . But they reported 88000.00 for last year

  8. Eva Rosenberg says:

    Dear SJ,

    They reported 88 THOUSAND dollars?!

    That’s a lot of money.

    1) Report it all on your tax return on line 21 – other income.
    2) Deduct it out on line 21 .
    3) On line 21 put a text description saying – See Statement
    4) Include a statement explaining that this is a fraudulent 1099
    and that you did not work for this company at all in 2013.

    If you became aware of this because the IRS send you a proposed tax assessment, call the IRS and tell them what happened. And that you would like to file a report with them for fraud.

    There is information about how to do that on this page http://www.irs.gov/Individuals/How-Do-You-Report-Suspected-Tax-Fraud-Activity%3F

    Have the IRS request proof of the checks paid to you in 2013.

    OR…get an attorney and have the attorney request copies of the cancelled checks OR the $88,000 they claim they paid you. Now I’ll bet you wouldn’t mind paying taxes if you actually got this extra $88,000. ;~)

  9. Kathy says:

    I worked as a W2 employee from 2000 to 2011 and was due outstanding commissions when I left the company. I had to take them to court to get the matter resolved which was settled in 2013. I was issued a check for the commissions owed 30k. Unfortunately the company issued me a 1099 in 2013 for the amount as if I was a contractor and it’s affecting my tax bracket. Should they have issued a revised w2 for the year 2011 that I worked and the money was earned? What do I do if the company is out of business and I can’t get a revised w2? What do you recommend?

  10. KT says:

    What happens when my employer is wrongly including medical insurance payments into net salary? I noticed this a few weeks ago and asked about it and was told that it should be taken out as pre-tax however this was never done. What next? When I get my 1099 my federal taxable income is going to be much higher than it should be because I missed out on a pre-tax benefit.

  11. Pauline says:

    Thanks Eva for the useful article. However, when you said “Deduct the difference between the amount reported on the W-2 or 1099 and the amount that should have been listed on the forms”, I’m not clear in case of an overstatement on W-2, which form or line on the 1040 do we report such difference?

    I’m not a US resident, and left the US in the middle of the year, but continued to work for the same company as a foreign employee working abroad. The company reported my full year wage on W-2, instead of the half year when I was physically in the US.

    Thank you very much

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