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Many people find dealing with the IRS to be impossibly stressful, but correcting a tax mistake is relatively easy. Before we detail the process of adjusting a tax mistake, let’s take a look at the most common mistakes that require these steps to be taken.
Tax errors generally fall into two categories: over-withholding and under-withholding.
Employers are not expected to know the correct withholdings that an employee should identify on their W4. If the under or over-withholding is a result of the employee miscalculating their withholding needs then the employee can change the number of withholdings or 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 (IRS Q&A)
There are, however, a couple scenarios where employer mistakes can lead to withholding errors, such as:
Once you discover or are notified of a tax error, it is incumbent upon you to restore either the employee or the government to their appropriate payment amount. If you have over-withheld, it is easy enough to correct this with the employee by having them fill out a new W-4 and withholding less money.
If you have under-withheld, again you’ll need your employee to fill out a new W-4 to get their withholdings in order.
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!