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April 2016 • www.CPAPracticeAdvisor.com 33 But what happens if discover errors in your withholding as you prepare the form, or even afer you fle the form? Under-Withholding It's not ha rd to m isca lc u late employee ta x w ithholding, espe- cially if you do the calculations with- out the help of a sofware program. Te rates may have changed without your knowledge – rates change at the frst of ever y year, but there have been times in the past where mid- year changes have occurred. If you're not keeping on top of the payroll tax laws, you could fnd yourself with- holding an incorrect amount. Te payroll charts can be confus- ing too – there are so many of them! Percentage vs. wage bracket charts, week ly/bi-week ly/semi-monthly/ monthly, and then single vs. married – it can be overwhelming, especially if you have multiple employees that fall into diferent categories. In addition, some of the payroll deductions your employees have can reduce the income that is subject to withholding, other deductions don't have this efect. It's no wonder employers hire payroll companies or purchase sofware to take care of the calculations for them. If you are preparing your Form 941 and discover that you haven't w ithheld enough ta x from your employees, you can respond to the mater in a number of diferent ways. • If you've under-withheld, you can catch up the missed withholding amounts in the months ahead by withholding additional from the employee's check until the under- withholding has been corrected. • You can ask your employee to reimburse you the under-withheld amounts so that you can correct the withholding and related tax pay- ments. Should a disagreement ensue over a reimbursement (something that could happen if the employee is leaving the company on bad terms), the employer still has the responsibility to correct the withhold- ing - particularly FICA withholding. If the employee refuses to reimburse the employer or allow the additional amount to be applied to future pay periods, the employer should report the additional tax he or she paid on the employee's behalf in the employee's W-2 earnings. • You as the employer can make up the under-withheld amounts on your own and not charge the employee. • You can reach agreement with your employee that under-withheld income tax will stand as is and the employee will be responsible for any underpaid taxes. You can also agree with your employee which of you will be responsible for any penalties arising from the under-withholding, but as this is the frst quarter of the year, there is plenty of time to make up withholding to avoid a penalty situation. Over-Withholding • If taxes have been over-withheld, you can make a correction in future pay periods by withholding less than the amount calculated on the tables or charts. • You can let the withholding stand as is. Over-withheld income tax will correct itself when the employee fles a tax return. • Over-withheld FICA should be corrected in future pay periods. If for whatever reason you have over-withheld FICA tax and want to leave it to the employee to request a refund, the employee will need to fle Form 843, Claim for Refund and Request for Abatement, with the IRS. At the end of the day, taxpayers need to be aware of whether or not their withholding is being calculated properly. "Regardless of under or over-w ithholding , income ta xes are always the responsibility of the taxpayer!" said Dawn Brolin, CPA, of Powerful Accounting. A Year in the Life of a PAYROLL Accountant is sponsored by ADP and SurePayroll The ADP logo and ADP are registered trademarks of ADP, LLC. ADP A more human resource. is a service mark of ADP, LLC. Copyright © 2015 ADP, LLC. Practice made perfect. You want to be more to your clients, and we want to offer you the fexibility you deserve. You can process payroll yourself using our proprietary cloud-based solution, refer clients directly to give your clients access to leading payroll and HR solutions, or even cash out of your existing payroll business to focus on what matters most to your frm. See how ADP ® can provide a more human resource to your frm and your clients: adp.com/cpaprograms. What to Do When Employee Withholding Is Incorrect By Gail Perry, CPA, Editor-in-Chief T he IRS Form 941, Employer's Quarterly Federal Tax Return, for the frst quarter of 2016 is due on April 30. All employers are expected to fle this form with the IRS unless they meet specifc exceptions as employers of seasonal, household, or farm employees. Even if you didn't pay any wages to your employees during the frst quarter, you are required to fle the Form 941.