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.
How to ensure 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.
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 correct a payroll error? ›
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.
Is it better to claim 1 or 0 on your taxes? ›
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.
What should I put on my W4 to avoid owing taxes? ›
If you want less taxes taken out of your paychecks, perhaps leading to having to pay a tax bill when you file your annual return, here's how you might adjust your W-4. Increase the number of dependents. Reduce the number on line 4(a) or 4(c). Increase the number on line 4(b).
Can I change my withholding at any time? ›
You can adjust your W-4 at any time during the year. Just remember, adjustments made later in the year will have less impact on your taxes for that year.
What is a good percentage to withhold for taxes? ›
Generally, you want about 90% of your estimated income taxes withheld and sent to the government.12 This ensures that you never fall behind on income taxes (something that can result in heavy penalties) and that you are not overtaxed throughout the year.
If you didn't pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax.
What happens if I didn't withhold enough taxes? ›
If you owed $5,000 in taxes for the year but only paid $2,000, you would have underpaid your taxes by $3,000. You paid less than 90% of what you owed so you would be subject to an underpayment penalty. The penalty would be the federal short-term rate at the time plus three percentage points.
Is it better to claim 1 or 0? ›
By placing a “0” on line 5, you are indicating that you want the most amount of tax taken out of your pay each pay period. If you wish to claim 1 for yourself instead, then less tax is taken out of your pay each pay period.
What happens if an employer withholds too much tax? ›
Your employer should adjust the excess for you. If the employer doesn't adjust the overcollection, you can use Form 843, Claim for Refund and Request for Abatement to claim a refund. Attach copies of your Forms W-2, Wage and Tax Statement for the year to Form 843.
What will happen if you enter the wrong amount on federal income tax withheld? ›
If the W-2 withholding does not match what you reported on your return, the IRS will adjust your return, and send you a letter. If you are owed an additional refund, you will receive a check. If you owe an additional payment, you will receive a bill.
What should I put for an additional amount withheld from my paycheck? ›
Take advantage of the line for extra withholding. If you want to have a specific number of extra dollars withheld from each check for taxes, you can put that on line 4(c).
