You just discovered a previous employer underreported Social Security wages and earnings and possibly made other errors. Now you worry that your Social Security benefits could be lower for you or your family.
Underreported Social Security wages and your duty
The IRS and Social Security Administration (SSA) place the responsibility for employer accuracy on you, the wage earner and taxpayer.
The SSA makes it easy for you to create a my Social Security account, which includes your Social Security Statement. That’s where you check your earnings record and see estimates of future retirement, disability, and survivor benefits. If you see something that doesn’t look right or doesn’t agree with your documents, you better get ready to do some detective work.
Backtracking Social Security wage reporting
Recently a client came to me after setting up her Social Security my account. She was angry and ready for action after discovering two years wages she earned 15 and 16 years ago had been vastly underreported.
Here’s her story, which she agreed I could combine with other client experiences and share. My composite client is Barbara.
Curious after finding seriously underreported wages during two consecutive years, and close to retirement, Barbara gave herself a challenge; find and investigate any less-obvious errors lurking in her records.
I earned my reputation as The Radical CPA
Underreported Social Security Wages?
Working directly with the Social Security Administration
Generally, the statute of limitations on correcting earnings is three years, three months, and 15 days. However, certain conditions permit revision at a later date, as shown on SSA’s instructions. These include:
- Fraud; mechanical, clerical or other obvious error; credit to the wrong person or the wrong period;
- Issues with Railroad Retirement
- Additional conditions for revision
Since Barbara’s issues exceed the statute of limitations, and the burden of proof is on her, she expects a bit more homework. She must locate documents which prove the error, such as tax forms, W-2 forms or pay stubs. If these aren’t available, the SSA needs the employer name and address, the dates worked there, earnings and the name and Social Security number used while employed.
Less obvious reporting and payment errors
Human error, equipment failure, and business mismanagement are major causes of reporting mistakes.
Barbara remembered working for a business that always seemed unable to pay vendors on time, and had a lot of back office confusion. A few years later, they permanently closed. She digs deeper.
My client has reason to look closer. An SSA pamphlet for businesses Don’t Let Your Employees Down begins with and includes:
“You reported more employee wages to the [IRS] than you reported to the [SSA] on your Forms W-2.”…
“…Your wage reports submitted to Social Security did not match IRS records for the year shown on the enclosed questionnaire. If the wage amounts you reported to IRS are correct, it means some of your employees’ earnings were not credited to their Social Security earnings records. This can affect your employees’ eligibility for, or the amount of their Social Security benefits, as well as their Medicare eligibility.”…
Issues like this take longer to resolve and may not result in a fruitful outcome.
Barbara had tax records dating back some 20 years and decided that sifting through them could be time well spent. If something looked suspecious, she set it aside. Barbard had read that the SSA had over $250 billion and 220 million accounts of uncredited earnings and unpaid benefits due to clerical errors and reporting mistakes! If some of that belonged to her, she wanted it!
How and why is the IRS involved
The IRS is always interested when money, wages, earnings, or most anything, changes hands. That’s just the way the IRS works.
If you suspect your employer isn’t reporting your wages and withholding to the IRS, your employer is violating tax law. However, you are still required to fulfill your tax obligations and file your taxes with the information you have. That could be your last pay stub of the year or whatever other information you have. You must also complete IRS form 4852, and attach it to your income tax return. If you use IRS form 4852, you cannot efile. You must submit your tax return by mail.
- If you’re 18 years old or older, create your personal my Social Security account. Check it annually, or more often if you feel it necessary.
- Paying an employee all or any part of their wage “under the table” is illegal. That employer may not adhere to other laws.
- If you’re not confident in your employer’s management or organizational skills, you may have a good reason.
- Make sure your earnings records show your name and Social Security number correctly. They should match. Don’t use nicknames. Barbara should not be Barb. Report name changes to Social Security and then apply for a new card.
Barbara resolved her issue with the two years of vastly underreported wages. One Social Security calculation describes an example of one year of missing earnings making a difference of $100 per month in retirement benefits. Barbara’s mom is 94, and Barbara sees herself enjoying a long retirement. As she figures it, her “detective work” earned her $200 per month for 30 years, or $72,000.
The bottom line
Individuals, as well as business owners, turn to their CPA specialist to help with financial issues that life puts in front of everybody. You don’t need to do it alone.
I can become your business and personal CPA specialist. We can provide you the advantage of knowledge and strategy so you can have the control you need and want.
I earned my reputation as The Radical CPA