CompanyCorrecting Employment Taxes: What to Do If You Withhold the Wrong Amount

It is very easy to commit some errors, particular when your plate is filled with a million and one concerns. One of the common mistakes you can make is withholding the wrong amount from your worker’s wage. It is necessary to correct employee taxes when you withhold too little or too much from the paychecks of your employee.

How to Correct Employment Taxes

When you have made an error on tax withholding, it goes without saying that you have to correct it. It might sound daunting to correct employment taxes but there is really no need for it to be so.

Before anything else, you have to assess the issue. Is the mistake about underwithholding or was it overwithholding?

In case you withhold too much from the wages of your employee, you will have to refund your worker. This can be done by withholding less from the future paychecks until the tax contributions of the employee are corrected. You can also choose to refund your employee. One more alternative is to not do anything and just let your employee to deal with it during the filing of their tax return. You can also choose to file a claim with IRS if the previous options don’t seem feasible to you.

In the event that you withhold too little from the wages of your employee, you can just withhold more amount from the next paychecks until you were able to withhold enough. You can also choose to pay the difference. Just like with withholding too much, you can just pass on the responsibility to your employee and let them handle the issue during the filing of their tax return.

After that, the next thing you have to do is to fix the reporting forms in case you already filed these with the IRS. You will also need to update the records. When withholding taxes from the employee wages, you can report these on Form 944, Employer’s Annual Federal Tax Return or Form 941, Employer’s Quarterly Federal Tax Return. To correct employment taxes, you have to file the corresponding X form.

Updating Form W-2c and Records

Make sure that you never forget updating the payroll records for every employee you under or overwithheld taxes from. When you fail to update these records, you are going to have inaccurate details for creating the Form W-2, Wage and Tax Statement.

For example, you withheld the taxes from the wages of your employee even after they already got to the Social Security Wage base. The result is that the information on the Form W-2 of the employee is incorrect. You have already sent the Form W-2 to Social Security Administration so you have to fix the error you made.

You have to file the Form W-2c, Corrected Wage and Tax Statement in order to fix the reporting mistakes on the Form W-2 if in case you have already sent this to the SSA. With the Form W-2c, you have to enter the previously reported details as well as the right information.

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