Tax Withholding, or lack thereof.
February 9, 2010 11:24 AM   Subscribe

Tax Withholding - Question regarding rights, responsibilities, and dealing with incorrect IRS Tax Withholding at a job.

A friend of mine started a salaried position in the United States at an employer that pays bi-monthly (24 pay periods) for 86.66 hours a period. When she started the job, she decided to enter $10 into box 6 on her W4. Box 6 states, "Additional amount, if any, you want withheld from each paycheck".

Fast forward to January 2010. The company switches payroll vendors, and her paycheck is $80/m lower. Upon review of her paystubs, I find that the employer was only deducting $10 *total* for federal tax withholding. All other values (FICA, etc) are accurate.

So I had to explain the $80/pay check bad news, followed by the fact she owes ~$3k in taxes for 2009 because her employer didnt withhold them, and she didn't know it was an issue.

What recourse does she have? Will the IRS have any mercy? Is the employer at fault?
posted by SirStan to Work & Money (9 answers total) 1 user marked this as a favorite
She is at fault; the employer withholds as (essentially) a courtesy. The IRS will probably help her set up a payment plan and is unlikely to give her a hard time; she should call them.
posted by chesty_a_arthur at 11:41 AM on February 9, 2010

I'm not a lawyer, but from prior experience with incorrect withholding on my W4, it is the responsibility of the employee to check their paychecks for correct withholding amounts. Yes, the employer should withhold the correct amount, but at the end of the day she stills owes that money.

Had she, say, told the company the W4 was wrong and the situation wasn't fixed, that would be different.

Luckily, the IRS loves making payment plans. IIRC, it is free to set up for 1-3 months to pay off. If it will take longer than 3 months, there is a fee of (I'm recalling this off the top of my head) something like $119. In both cases, there is penalties and interest.

A word of advice: She needs to call the IRS. Taxes owed have a way of multiplying quickly, especially is she delays in filing. The IRS isn't going to harass her or insist she pay immediately. Really, once you get past the horrible waits on hold, they're nice people who really don't care one way or the other about your business.
posted by caveat at 11:43 AM on February 9, 2010

IANAL, IANYL. You/your friend should consult one.

The IRS and mercy do not go together in the same sentence.

If she actually owes $3,240 in taxes (your ~$3000 owed plus the $240 she had withheld based on $10/paycheck), that means she made around $24,500 in 2009 and each paycheck was around $1000. She really should have noticed that she was having 1% of her salary withheld considering she's in the 15% bracket.

Consult a lawyer. Immediately.
posted by jckll at 11:43 AM on February 9, 2010

They will have mercy, but they'll still expect to get the money. This is a huge emotional deal for your friend, but the IRS is not going to call out the big guns for it. Tax software should be able to walk her through this.

Unless someone is repeatedly committing fraud, most snafus are easily resolved, and you can stop being scared shitless of the IRS.
posted by sageleaf at 12:18 PM on February 9, 2010 [1 favorite]

(Re: IRS and mercy. If by "mercy" you mean they will help you figure out how you can pay the money, then yes, mercy. If by "mercy" you mean "heeeey, not your fault! Don't worry about it!" then no, no mercy.)
posted by chesty_a_arthur at 12:28 PM on February 9, 2010 [1 favorite]

I really don't see what a lawyer is going to do - unless the company was withholding money that was not reported to the IRS or were refusing to provide her a check stub/DD statement/documentation, they did nothing wrong. It is always the employee's obligation to confirm withholding amounts because it is the employee's choice how much to have withheld. It doesn't matter if they made a mistake, as long as they reported the withholding correctly.

File normally, request a payment plan if she doesn't have a low-interest credit card or the cash on hand. The absolute worst thing to do is freak out and not file. They are not scary or mean if you can't pay but contact them according to their instructions to make arrangements. She'll never not triple-check her withholding again.
posted by Lyn Never at 12:38 PM on February 9, 2010 [1 favorite]

There's no way she's going to get out of paying the IRS the amount she owes in tax; she would have owed that anyway. The IRS would have been paid the other way, they'll have to be paid that way.

However, while I am not her tax preparer/CPA/lawyer/etc, I will say that your chances of getting underpayment penalties interest waived in this case and a reasonable payment plan are relatively good given my past experience. The IRS does as a rule care about intent. Ideally, get a CPA to handle this part. People with experience in this figure out over time the best way to phrase things to get what they want out of the IRS.

That said, $80/semimonthly (this is the payroll term, bi-monthly would mean every two months), does not equal $3000 for a year. She needs to check her withholding for this year to make sure it's sufficient.
posted by larkspur at 12:55 PM on February 9, 2010

I am a sometime tax preparer and my sense is that larkspur is correct; if you cannot get those things waived, however, the Taxpayer Advocate Service may be able to help. The IRS reform about a decade ago made sure that they had rules in place so that they would not make things more difficult for taxpayers who agreed that they owed and were willing to pay, and the TAS is the watchdog for that.
posted by dhartung at 11:17 PM on February 9, 2010

This is February, she doesn't have to file and pay until April 15. Could she do her 1040 now, determine what she actually will owe on April 15, and save up and earn the required amount in 2 months? There's nothing wrong or terrible about under-withholding throughout 2009 as long as she can pay what she owes by mid-April.
posted by 2xplor at 6:08 AM on February 10, 2010

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