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
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.
Why is my job not withholding enough federal taxes? ›
The amount of tax withheld from your pay depends on what you earn each pay period. It also depends on what information you gave your employer on Form W-4 when you started working. This information, like your filing status, can affect the tax rate used to calculate your withholding.
How do you adjust your withholding? ›
Change your withholding
To change your tax withholding you should: Complete a new Form W-4, Employee's Withholding Allowance Certificate, and submit it to your employer. Complete a new Form W-4P, Withholding Certificate for Pension or Annuity Payments, and submit it to your payer.
What happens if your employer messes up your tax withholding? ›
If the company corrects the W-2 later on or reported a wrong withholding amount, then you may get a letter from the IRS requesting you pay some of the withholding back sometime in the future.
How do you apologize for payroll errors? ›
When writing to an employee about a payroll error, start with a direct identification of the issue. This transparency sets the tone for clear and open communication. A sincere apology should follow, signifying the company's commitment to integrity and rectifying the situation.
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.
Can you get in trouble for not withholding enough taxes? ›
An underpayment penalty is a fine charged by the Internal Revenue Service (IRS) when taxpayers don't pay enough of their estimated taxes due during the year, don't have enough withheld from their wages during the year, or pay late.
Is it better to claim 1 or 0 allowances? ›
Claiming 1 on your tax return reduces withholdings with each paycheck, which means you make more money on a week-to-week basis. When you claim 0 allowances, the IRS withholds more money each paycheck but you get a larger tax return.
Can I change my federal withholding online? ›
Log on to servicesonline.opm.gov to start, change, or stop Federal and State income tax withholdings; request a duplicate tax-filing statement (1099R); change your password for accessing our automated systems; establish, change, or stop an allotment to an organization; change your mailing address; start direct deposit ...
How to make sure enough taxes are withheld? ›
Use the Tax Withholding Estimator on IRS.gov. The Tax Withholding Estimator works for most employees by helping them determine whether they need to give their employer a new Form W-4. They can use their results from the estimator to help fill out the form and adjust their income tax withholding.
If you claimed 0 and still owe taxes, chances are you added “married” to your W4 form. When you claim 0 in allowances, it seems as if you are the only one who earns and that your spouse does not. Then, when both of you earn, and the amount reaches the 25% tax bracket, the amount of tax sent is not enough.
How much federal tax should be withheld? ›
Marginal tax brackets for tax year 2024
| Taxable income | Taxes owed |
|---|
| $0 to $23,200 | 10% of the taxable income |
| $23,201 to $94,300 | $2,320 Plus 12% of the amount over $23,200 |
| $94,301 to $201,050 | $10,852 Plus 22% of amount over $94,300 |
| $201,051 to $383,900 | $34,337 Plus 24% of amount over $201,050 |
3 more rowsFeb 7, 2024
Taxpayers use a Form 940 for correcting a previously filed return by checking the amended return box in the top right corner of the Form 940. Employers should use the corresponding "X" forms listed below to correct employment tax errors as soon as they are discovered.
What to do when employee withholding is incorrect? ›
If you file Form 941 and make a mistake on tax withholding, file Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund. You can either use this form to report overreporting and underreporting and pursue the adjustment process, or you can claim a refund from the IRS. You cannot do both.
How to correct a payroll underpayment? ›
If you realize you underpaid an employee, you should fix the mistake as soon as possible. Let the employee know they will be receiving additional wages and what they are for. If it is alright with the employee, this may be a time when you should write a physical check so they can get the wages faster.
Who is responsible for payroll errors? ›
The employer is liable for the payroll error and any accompanying fines and consequences. With that said, within a company setting it may be necessary to apportion blame where the payroll was made.
Can you get in trouble for filling out W4 wrong? ›
The longer the mistake goes unnoticed, and the longer you're underpaying employee payroll taxes, the bigger the tax penalties. You can be penalized for 100% of the money owed, plus interest as the months and years go by.
How to do payroll correction? ›
Resolution steps. The first step is to correct the deduction error in the payroll system. Next, you should adjust the following paychecks to reimburse the over-deducted amount. You should notify all affected employees of the error, and clarify when they'll see the corrections reflected in their pay.
