you will need to do a Form W-2c, and W-3c to correct his wages back to -0-.  then you will need to amend all the Quarterly 941s, State Unemployment Forms, Form 940 if he was included in those reports.  Based on the fact that he didn't know he couldn't get a W-2 as a sole proprietor, he may or may not have even included himself on any of those reports.  You can not put his W-2 AND any information from it, on his form 1040. He should not have a W-2.