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 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.
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.