If you receive a number of paychecks that you do not cash, because your company has told you to hold on to them (they do not have the money in the bank) and these paychecks are reported on your W-2 - how do report the non-receipt of income. The company is now in bankruptcy and no longer exists.
Should you report the W-2 as received and write-off the non-receipt of pay as a bad debt on schedule A?
You would record the bad debt on schedule D as a short term loss not as an itemized deduction on Schedle A.
Now I have to disagree with this treatment. The key to the problem is that although company issued the checks, they qualified them by saying dont cash them yet; or now; or next week, or until we tell you to. And they never did.
So when you know a check's no good, you don't have constructive receipt of the income.
One way to go would be to prepare a paper return for client listing only the verifiable wages on line 7, and verifiable income tax withheld on line ... 57 (?) with a statement attachment explaining reasons and the situation in full.
Of course if lower wages affected the EIC available..... ??? What would you do?
ChEAr$, Harlan Lunsford, EA n LA
Well what would you do if the amount(s) withheld on the paycheck are greater than the employee's actual tax liability? Did the employer file payroll returns and remit all taxes? Does it matter from the employee's stand point if the employer never paid the taxes?
========================================= MODERATOR'S COMMENT:
- please trim the post to which you are replying
Doesn't matter a whit what employer did or did not do. The major problem here is determine correct and true income with associated withholdings.
ChEAr$, Harlan Lunsford, EA n LA
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