Hello:

For the 2005 tax year, my employer erroneously withheld social security and medicare taxes in excess of the actual amount I owed. This was due to my being on OPT and then moving to an H1-B.

I filed form 843 in 2006 along with form 1040NR-EZ and got my refund from IRS for that amount. However, since IRS took an exceptionally long time (almost 8 months) to process my refund request, they also paid me the interest (a princely sum of $67.00) that had accrued on the refund.

Subsequently in Jan 2007, I have received a form 1099 from IRS stating this amount ($67.00) is an interest income for the calendar year 2006. I also received an employee copy of form W2-C from my employer that corrected the social security and medicare taxes withheld from my 2006 W2. The change in the taxes withheld does not alter my AGI for 2006.

I have read the necessary schedules and form instructions on IRS.gov but I am still unclear about 2 things -

1) Do I need to file form 1040X for the 2005 tax year with the W2-C from my employer? Or is the W2-C just for my records? All the literature I read about the W2-C seems to indicate that it is the employer's responsibility to report the correction in the W2 to IRS. There were no clear instructions as to what an employee ought to do.

2) Do I need to report the interest I received from IRS ($67.00) last year for my refund as income on my 2006 1040-EZ? I ask because I read in a number of places that every 1099 received may not necessarily amount to a taxable source of income.

Thanks a lot for your time and help.

1) Did you get a refund of the withheld Social Security and Medicare taxes FROM YOUR EMPLOYER? If so, then you got your money back TWICE, once from the IRS and ONCE from the employer; you will have to return one of the refunds. If NOT, then the W-2C is just for your records.

2) Yes, the $67 is income reportable on your Form 1040EZ for 2006.