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Employer Revised My W2... help!

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buzzard86
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Employer Revised My W2... help!  Reply with quote  

Hello everyone -
I'm new to the forum and have a tax-related question that seems appropriate to pose to this group. Thanks, in advance, for any info and advice that you can give.

Here's my situation. I went back to school in 2004 for a second bachelor's degree. At the start of my program, my employer offered me a scholarship in exchange for working for them for 2 years. My employer is the same university that I attended and, in exchance for my 2 year contract, they waived/paid my tuition bill. They also led me to believe that the money was not taxable since it was a scholarship and the money went directly to tuition payment (ie, I never saw a penny of the money). My academic program went from May 2004 and I graduated in May 2005.

Much to my surprise, I got a letter in the mail about 3 weeks ago from payroll saying that due to an administrative oversight, they were sending me a revised W2 that included my tuition payment as taxable earnings. Apparently they (or their lawyers) decided that since an employment contract was involved, the tuition should have been considered income. Their "oversight" has given me three weeks to come up with roughly $8000 to pay to this IRS on these new-found earnings.

Have any of you ever come across a similar situation? Do I have any recourse what-so-ever? I'm quite frustrated because, in addition to having to come up with this large sum of money in very short order, I was not expecting to have to pay it. Mind you, I was not given a lump sum of cash like a signing bonus. What is further confusing me is that my employer gives me tuition reimbursement on work on my Master's degree. This tuition payment is also contingent upon employment (if I don't stay 2 years after the class ends, I have to pay back the tuition) yet this is apparently not taxable.

Appreciate any thoughts and possible avenues of appeal on this.

Best regards,
JIM
Post Sat Apr 08, 2006 4:55 pm
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coaster
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Hmmmm....isn't this a pickle. This is only opinion, mind you, but it appears to me the scholarship/tuition waiver was given in exchange, and conditional upon, your period of work, so that makes it compensation. They made a mistake telling you it was not taxable. So you're suffering as a result of their error. But I don't see how you can get out of it.

The arrangement with your current employer looks like an employment benefit. Some bennies are taxable, some aren't....I'm not familiar with IRS law covering that area. But I don't think there's any relevance to your first situation.

The only thing I can suggest is contacting the IRS and see if there's any way of getting more time due to the circumstances of the ammended W-2 being provided to you too late. Otherwise you'll start racking up interest and penalties after April 17. The timing is the only thing I see working in your favor. Employers are obligated to provide W-2s by a certain time (Jan 31, I think.)

~Tim~
Post Sat Apr 08, 2006 5:33 pm
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buzzard86
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Hi Tim -
Thanks a lot for taking the time to reply. As I understand it, you've hit the nail on the head regarding the issue of taxation. Since the tuition repayment was tied to the contract, the law apparently says that it must then be considered compensation and taxed as such. Apparently there was a gray area since the money was applied directly to tuition and not given to me as cash, thus the delay in my employer determining its taxable status. I can say for certain that had I know it was taxable, I would have much preferred to have been given the cash as a do-with-whatever-you-please signing bonus and taken a low-interest student loan for the tution, as my colleagues from other institutions have done. On hindsight, I probably would have turned down the "scholarship" all together, but that's water under the bridge at this point.

Can you tell that I'm very frustrated with my employer right now? Rolling Eyes Further compounding my frustration is that the tuition bill was actually due (and therefore "paid") in the fall of 2004, so they are actually 15 months late in issuing this amended W2! However, they applied it to my 2005 earnings. Do you happen to know if an employer has any BINDING legal obligation to report earning by a certain point, and do they face any penalty for failing to do so? I ask because I did go to them late last March to make absolutely certain that these were not taxable (because I feared that this situation might arise) and they indicated that they thought it was not. Like I said, tuition bill was actually due in 2004 so I think that they really should have let me know but early 2005, not weeks before taxes due in 2006.

We squared up with the IRS today by drawing on our savings, but it was a tough payment to make. If you or anyone have have any additional thoughts on my situation, I'd greatly appreciate your advice.

Great forum, by the way.

Take care -
JIM
Post Sat Apr 08, 2006 6:13 pm
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coaster
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I'm assuming the employer has a binding legal obligation to provide a W-2 by a certain date, but if I'm correct the obligation is to the IRS and so any action taken for their failure would have to be by the IRS against them. I don't think you're going to have any cause for action. But if you decide to consult an attorney, I'm sure we'd all like to know what he/she says.

Sorry for that big "bite" -- that had to hurt!! Shocked

~Tim~
Post Sat Apr 08, 2006 6:48 pm
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efflandt
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See http://www.irs.gov/faqs/faq-kw56.html

If the education was a job requirement or related to your current job, expenses may be deductable. If it was for your own enrichment (unrelated to your current job), then not.

Whether the expenses for working towards your masters are deductable would fall under the same requirements. Is it required or to improve skills for your current job (not advancement) or not.

In the past our company paid for any educational expenses (like for a co-worker in sales to get his MBA). But when IRS requirements changed, they came out with a directive that they will no longer do that unless required or related to your current job.

PS: If there is any underwithholding penalty, you should hit up your employer for that, since they were obligated to withhold taxes from taxable income.
Post Sun Apr 09, 2006 3:26 pm
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Kiaser
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Re: Employer Revised My W2... help!  Reply with quote  

quote:
Originally posted by buzzard86
Hello everyone -
I'm new to the forum and have a tax-related question that seems appropriate to pose to this group. Thanks, in advance, for any info and advice that you can give.

Here's my situation. I went back to school in 2004 for a second bachelor's degree. At the start of my program, my employer offered me a scholarship in exchange for working for them for 2 years. My employer is the same university that I attended and, in exchance for my 2 year contract, they waived/paid my tuition bill. They also led me to believe that the money was not taxable since it was a scholarship and the money went directly to tuition payment (ie, I never saw a penny of the money). My academic program went from May 2004 and I graduated in May 2005.

Much to my surprise, I got a letter in the mail about 3 weeks ago from payroll saying that due to an administrative oversight, they were sending me a revised W2 that included my tuition payment as taxable earnings. Apparently they (or their lawyers) decided that since an employment contract was involved, the tuition should have been considered income. Their "oversight" has given me three weeks to come up with roughly $8000 to pay to this IRS on these new-found earnings.

Have any of you ever come across a similar situation? Do I have any recourse what-so-ever? I'm quite frustrated because, in addition to having to come up with this large sum of money in very short order, I was not expecting to have to pay it. Mind you, I was not given a lump sum of cash like a signing bonus. What is further confusing me is that my employer gives me tuition reimbursement on work on my Master's degree. This tuition payment is also contingent upon employment (if I don't stay 2 years after the class ends, I have to pay back the tuition) yet this is apparently not taxable.

Appreciate any thoughts and possible avenues of appeal on this.

Best regards,
JIM


I'm no lawyer, but I think you at least should contact one. You were GIVEN the impression by that company that working for them would net you a certain amount (which was the scholarship, and that means no taxes). If you were given the correct information, that you WOULD in fact pay taxes on the amount, then that might have/could have caused you to seek employment elsewhere.

Either way, they stated you a contract of payment and you haven't received that amount (due to now you are paying taxes). I know I'd be pissed if I was offered a job and then wasn't paid the amount they offered.
Post Wed Apr 12, 2006 10:27 pm
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