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[wgraham969]

Jurisdiction/Place:

I'm a defense contractor, earning an hourly rate, who deployed to Iraq with the 101st Airborne Division in August, 2005, and returned to the states in August 2006, qualifying for IRS 2555 physical presence test for a portion of both tax years. I spent approximately six weeks in Kuwait before moving north into Iraq, and 10 days in the states in December 2005 and January 2006 because of a death in my wife's family.

During the early part of the deployment, there was a considerable fluctuation in my total pay each pay period, due to: difference in pay rates between U.S. and Southwest Asia; difference in per diem rate between Kuwait and Iraq; reduction in per diem after 30 days in-country; holiday pay premium; difference in hazardous duty pay between Kuwait and Iraq; and hourly pay differential in Iraq; incorrectly withholding for state income tax, and subsequently stopping the withholding and refunding the amount withheld. I received a pay statement (by e-mail) on or within a few days of my direct-deposit pay. When I received each statement, I verified the number of hours I had worked, my hourly pay rate, and hazardous duty pay percentage. I'm paid every two weeks, with a one-week lagtime between the close of a pay period and the pay-date for that two-week pay period. Also during this time, I worked 12-hour days, seven days/week, totaling 168 hours per pay period.

While getting ready to prepare my 2006 taxes, my wife and I discovered that I had been paid incorrectly (shorted) EVERY pay period from the time I arrived in Kuwait until approximately mid-December--approximately four months. As soon as I discovered the problem with my pay, I notified my local payroll personnel of the problem, along with copies of my pay statements from the affected period, along with copies of the time-sheets I had signed upon my return to the states, verifying my hours worked for the year that I was deployed.

I was given a pay adjustment, along with my regular pay, early this month (March). When I requested a corrected W-2 to correctly reflect the amount of pay I had earned in 2005 (including the pay adjustment), I was told that since "the employee received the funds in 2007, he will not get a corrected W-2. The law states that whenever an employee receives money in that year no matter if it was earned 10 years before it goes on the year the employee received the money."

I just want to make sure that my corporate payroll people aren't just being lazy or vindictive, since they have the impression that I was negligent and filled out my time-sheet incorrectly (QUOTE from e-mail: he's that guy that I had to go back to 2005 and give him a retro pay because he used the wrong charge code on his timesheets thus he was paid at the wrong rate. I think Jan's already explained to them that we can't do a corrected W-2 because the funds were received in 2007. END QUOTE)

Truthfully, I'm more than just a little peeved at this entire situation, because I verified my hours worked (regular hours, overtime hours, holiday hours), hourly pay rate, hazardous duty pay rate, per diem pay, and (in Iraq) the Iraqi pay differential. It simply never occurred to me that I would need to verify that the computer had done the math correctly. I didn't realize until after the beginning of 2007, that the company's pay system hadn't used the same numbers in computing my pay as were shown on the pay statement. I'm even more peeved that the payroll people at our corporate office are laying this entire fiasco at my feet. And, since the problem auto-corrected in mid-December 2005, it's obvious to me that someone realized that there had been a problem with my pay, corrected it from that date forward, but never notified me that I should check my previous pay statements to determine if there was a problem.

There was one other employee who was affected by this error, but he doesn't quality for IRS 2555 since he returned home before 330 days. His pay was corrected two weeks before mine was, but he was also never notified that there had been a problem with his pay.

I do apologize for the length of this post, but I have two questions:
1) Are the corporate payroll folks correct about the corrected W-2?
2) Do I have any other recourse to save the amount of taxes I'd be required to pay if I had been paid correctly in 2005, versus my tax liability due to receiving the pay adjustment, and subsequent tax liability, in 2007? Would litigation be an option, even if only in Small Claims Court?

Thanks to anyone who has the perserverance to read through all this and also provide an answer. If you have questions, or if there is anything that isn't clear, please ask.

[wgraham969]

I have verified that our payroll folks were correct about the year of tax liability. My second question still remains: Do I have any other recourse to save the amount of taxes I'd be required to pay if I had been paid correctly in 2005, versus my tax liability due to receiving the pay adjustment, and subsequent tax liability, in 2007? Would litigation be an option, even if only in Small Claims Court?

Again, thanks for your consideration.