Many people find dealing with the IRS to be impossibly stressful, but correcting a withholding mistake is relatively simple fix.
Here, we'll outline the types of withholding errors as well as discuss the steps to correct them.
How Do Withholding Errors Happen?
Withholdings, the amount you set aside in tax for each paycheck, is handled by the employer and based on IRS calculations. Still, employers rely on the information their employees provide in their W-4 to come up with the percentages.That's because the W-4 form includes information about the employee's filing status, dependents, and other factors that affect how much tax is owed.
If W-4 information is incorrect, the amount an employer decides to withhold for that employee could be as well. Withholding errors fall into two categories: over-withholding or under-withholding.
Over-withholding means paychecks are setting aside more than the employee need for annual taxes.
Under-withholding means an insufficient amount is taken from each paycheck
How Do I Correct Withholding Errors?
If a W-4 error is caught after filing taxes that year, we advise consulting with your CPA to determine if you need to refile. If the amount under/over withheld is deemed too excessive, the IRS can send a lock-in letter notifying the employer how to adjust withholding regardless of the employee's W4 requests.
If a W-4 error is caught before filing, individuals can correct this relatively easily by refiling a W-4 with their employer. This can be found and downloaded from the IRS website.
When filling out the W-4, you have the option to withhold more than the amount your employer calculates. In the 2023 form, this is done online 4c. People will do this to either avoid paying a large chunk during tax season or to receive a larger return, depending on your taxes owed. To see how your withholding amount affects your refund, take-home pay, or tax due, use the IRS's estimator tool.
If you make a tax mistake, it's important not to panic. Errors are human nature, and as long as the inaccuracies were not an attempt at deceit, there is no reason to believe that you will face damaging consequences.
Of course, the easiest way to minimize the opportunity for error is to use Tax Pay & File from Future Systems. Over 99% of our payroll clients use this service, which costs less than an average IRS penalty. Contact us today to learn more!
FAQs
For the adjustment process, file one Form 94X-X to correct the underreported tax amount and pay any tax due. For the claim process, file a second Form 94X-X to correct the overreported amounts.
What happens if my tax withholding is wrong? ›
If the amount under/over withheld is deemed too excessive, the IRS can send a lock-in letter notifying the employer how to adjust withholding regardless of the employee's W4 requests. If a W-4 error is caught before filing, individuals can correct this relatively easily by refiling a W-4 with their employer.
What are the two outcomes if you fill out your W-4 incorrectly? ›
Incorrect information such as an overcount of dependents or omitting consideration of significant income with no withholding like interest or dividends can lead to withholding that falls short of the taxes you owe for the year, possibly resulting in a penalty for underpayment.
What happens if an employer does not withhold enough Social Security tax? ›
If the employer discovers the error after the calendar year of the wage payment closes, the employer provides the employee and the Social Security Administration (SSA) a corrected Form W-2 (Form W-2c, Corrected Wage and Tax Statement) reflecting additional FICA earnings for the prior year and FICA tax withholding as if ...
How do you address a payroll error? ›
How to Handle Payroll Errors
- Step 1: Briefly state the error and apologize. ...
- Step 2: Describe what caused the error and show the employee exactly how the correct pay should have been calculated. ...
- Step 3: Explain what steps are being taken to fix the error and to ensure it is not repeated.
For federal tax withholding: Submit a new Form W-4 to your employer if you want to change the withholding from your regular pay. Complete Form W-4P to change the amount withheld from pension, annuity, and IRA payments. Then submit it to the organization paying you.
How to correct a payroll underpayment? ›
How to fix an underpayment
- Step 1: Work out how long the employee has been underpaid.
- Step 2: Work out how much the employee was actually paid.
- Step 3: Work out how much the employee should have been paid.
- Step 4: Calculate how much the employee has been underpaid.
- Step 5: Backpay the employee.
Your Clients Can Get a W-4V Online
To start, change, or stop federal income tax withholding from their Social Security benefits, your clients can sign and submit IRS form W-4V directly to their local Social Security office.
Can mistakes on a W-2 can be corrected? ›
You need to create an amended W-2 form if you make an error on Form W-2, such as including incorrect names, Social Security numbers, or amounts.
Is it bad to claim 2 on W4? ›
You can claim anywhere between 0 and 3 allowances on the W4 IRS form, depending on what you're eligible for. Generally, the more allowances you claim, the less tax will be withheld from each paycheck. The fewer allowances claimed, the larger withholding amount, which may result in a refund.
Payroll tax penalties, more properly known as employment tax penalties, are fines levied by government agencies on employers who don't fulfill their tax responsibilities.
Who is responsible for incorrect W2? ›
An employer must correct the error if the employee's name or Social Security number was incorrectly reported on Form W-2. On the other hand, if the only error on an employee's Form W-2 is an incorrect address, no correction is required to be sent to the SSA.
Can I still get a refund if no federal taxes were withheld? ›
If you do not have any federal tax withheld from your paycheck, your tax credits and deductions could still be greater than any taxes you owe. This would result in you being eligible for a refund. You must file a tax return to claim your refund.
How long does a company have to correct a payroll error? ›
In California, employers have up to 30 days to correct payroll errors. If they fail to rectify underpayment or issue late paychecks in that time, employees are entitled to a full day's wages at their regular rate for each day the mistake persists.
Who is responsible for payroll tax errors? ›
The employer is liable for all taxes, penalties and interest due. The employer may also be held personally liable for certain unpaid federal taxes. If there are any issues with an account, then the IRS will send correspondence to the employer at the address of record.
Who is responsible for payroll error? ›
Employer is the Responsible Party
The California Labor Code holds the employer responsible for accurate wage statements and that responsibility can't be passed on to the payroll company.
Whose responsibility is it to correct errors on your pay stub? ›
To help maintain employee satisfaction, employers must be sure to pay their employees accurately and on time. However, mistakes happen, even on paychecks. When there has been a mistake made on a paycheck, employers need to fix the problem as soon as possible and keep the employee updated during the process.
