As you might have noticed, a number of companies have shut their doors over the last few years. Making matters worse for the former employees of some of those businesses is that they still have to file their tax returns — but no one wants to give them a W-2.

Reader Miss Dev writes in with a story that is probably not terribly uncommon. The company she and some friends had worked for went out of business last year and no one has received a W-2 from their former employer or from its payroll processor Paychex.

Writes Dev:

When none of us had received a W-2, we called the owner of the now defunct company to ask if he might have received them and to send them on. He told us that Paychex refused to release the W-2s as the ex-company no longer had an account with them. We also called Paychex and were told that it doesn’t matter if the company went out of business, it would not send out W-2s if there isn’t an active account. They provided us with an IRS number.

We called the IRS and were told that they would be unable to “look into it” until June or July, and that everyone would have to file extensions. They also informed us that anyone who claims the Earned Income Credit or files jointly with a spouse would lose those tax benefits by filing an extension. That was our only option.

We called Paychex back and were transferred to the W-2 department, who said that they didn’t deal with these issues, that we would need to speak with HR. However, they refused to transfer us to HR or to give us a number where we could reach them. Calling the main number back just tossed us into a spirally pit of auto-responses and we never got anywhere.

For those of us who saved our pay stubs, we will file without W-2s. But some of the people who stayed with the company to the bitter end didn’t receive their final stubs and others didn’t keep their pay stubs, trusting (stupidly) that they would receive their W-2.

My question is, how is this legal? How can Paychex hold our tax information hostage because the company with whom we were formerly employed no longer exists? Is there any recourse that doesn’t mean some people losing out on tax credits they are due?

Please help! Especially for those folks still without work, this is yet another blow to their finances that they just can’t handle.

First off, the IRS has an article on its website that pertains directly to this issue:
http://www.irs.gov/newsroom/article/0,,id=106470,00.html

But beyond that, we spoke to a tax expert who offered the following advice:

One suggestion is to contact your state’s Dept. of Labor (to ask for info and perhaps file a complaint) and the taxation dept. as well. The employees will need to file state tax returns — hopefully they won’t get the same runaround from the state as they got from the IRS.

I also think they shouldn’t give up on the IRS — in my experience, you can get way different guidance or degrees of helpfulness depending on who you get on the phone. There’s also the IRS’s taxpayer advocate office (http://www.irs.gov/advocate/article/0,,id=212313,00.html) — presumably they can help, particularly since these folks are at risk of losing their tax benefits if they file for extensions.

If Paychex won’t provide a W-2, maybe it will send a copy of the last pay stub (since there’s no work involved with that).

We spoke to Paychex to see if the company could clarify its policy in situation’s like Dev’s and they issued the following statement:

While we recognize this is an unfortunate situation, and Paychex would like to provide employees of former clients with W-2s, we are unable to do so for several reasons.

Foremost of these reasons is that the service agreement Paychex has with each of its clients is with the employer, not the employee, and we can only take action as directed by the employer. Furthermore, it is the employer’s responsibility to verify that all documents generated by Paychex represent the wages actually received. Paychex has no way of verifying this information. And, the law states that it is the employer’s responsibility to provide W-2s to their employees, not Paychex (as a third party).

As part of our practice when a client leaves our service, we conduct an exit conversation with that client, during which we ask the employer if they would like us to issue W-2s and other tax documents for them at the appropriate time. We are happy to do this, if directed to do so, even for those clients who leave our service.

If Paychex is contacted by an employee of a former client, we explain that they must contact their former employer for assistance. If they can’t make contact, we direct this employee to contact the IRS. If the employee has not received a W-2 by February 15, he/she can contact the IRS for assistance toll free at 1-800-829-1040. When calling, they should have the following information available:

* The employer’s name and complete address, including zip code, the employer’s identification number (if known), and telephone number.
* Their (the employee’s) name, address, including zip code, Social Security number, and telephone number.
* An estimate of the wages earned, the federal income tax withheld, and the dates employment began and ended.

As Dev mentioned in her note, her story is a good example of why you should hold on to pay stubs. Much of the info you’d get from your W-2 will also be on the final pay stub.

Our pals at Consumer Reports have this list of what things you should hold on to, and for how long.

We’ve given all this information to Dev to pass on to her friends, but if you’ve ever run up against this wall, share your story in the comments.

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