How does tax liability work between employee and employer?
January 24, 2024 3:46 PM Subscribe
I have a somewhat complicated tax situation relative to my employment, and as I work to ensure that my W-2 is correct in advance of filing my taxes, I'd like to know how liability for correct tax filing is divided between me, my employer and 3rd parties they engage to do payroll.
I don't think the specific details are relevant, but suffice to say that my paystub for December, 2023 had significant errors, resulting in a considerable underpayment of salary owed, incorrectly excessive tax withholding and under-reporting of taxable income. Unfortunately, I didn't have time to identify and characterize the complete nature of the errors until mid-January, meaning there will have to be a W-2c form, and a whole lot more complexity regarding salary that was owed in 2023 being paid in 2024, incorrect tax withholding and all the associated complications.
Apart from all those details, which I'm working to understand, I would like to know what my liability is with regards to filing my taxes correctly in the face of errors arising from the behavior of my employer or the 3rd parties they use to administer payroll. For example, if I receive something of (taxable) value from my employer and they fail to report that value in my W-2, could I be guilty of tax fraud for filing my return according to that erroneous W-2? Would my employer or any of these 3rd parties bear any liability? Finally, what are some ways I can protect myself, ideally while minimizing additional time and expense for me.
I don't think the specific details are relevant, but suffice to say that my paystub for December, 2023 had significant errors, resulting in a considerable underpayment of salary owed, incorrectly excessive tax withholding and under-reporting of taxable income. Unfortunately, I didn't have time to identify and characterize the complete nature of the errors until mid-January, meaning there will have to be a W-2c form, and a whole lot more complexity regarding salary that was owed in 2023 being paid in 2024, incorrect tax withholding and all the associated complications.
Apart from all those details, which I'm working to understand, I would like to know what my liability is with regards to filing my taxes correctly in the face of errors arising from the behavior of my employer or the 3rd parties they use to administer payroll. For example, if I receive something of (taxable) value from my employer and they fail to report that value in my W-2, could I be guilty of tax fraud for filing my return according to that erroneous W-2? Would my employer or any of these 3rd parties bear any liability? Finally, what are some ways I can protect myself, ideally while minimizing additional time and expense for me.
Response by poster: To clarify, I'm not asking what my actual risk is in practice. I know I'm a small fish and doing my best to get it right and that the IRS is really just trying to get the money they're owed, not be vindictive. I'm asking what my technical liability is. What theoretical risk am I being exposed to through my employer's mistakes?
posted by Cogito at 4:30 PM on January 24, 2024
posted by Cogito at 4:30 PM on January 24, 2024
Your W-2 should be an accurate reporting of the:
Gross wages you received from a single FEIN employer in the year 2023
The taxes (any and all) you had withheld from those wages
Any pretax (cafe 125) benefit plan premiums paid
Any 401k, HSA, FSA, commuter, or similar money you elected to contribute. 401k is your personal contribution only with no match, but if your employer matches for anything else those should be on there
Group term life value if relevant
Total health plan value
And a few other things that are less likely and probably not your situation or you would have mentioned them.
Your W-2 is not a statement of what you individually should owe in a tax year. It's just a one sheeter summarizing what happened for you in this single employer relationship. Your W-2 is also not a place for you to realize you made a personal error filling out your (for example) W-4 and expect your employer to go back in time to clean up. (I only add this because I've been asked to do this a number of times. Hi, I am responsible for payroll at my job.)
If your employer gave you something like a cash card or a trip as an employment reward in lieu of check wages, yes they should have reported that as taxable income for you. Technically yes you should report it if they didn't. Will anyone come after you if you don't? Very unlikely. Nominal gifts like a fruit basket on Christmas or a mug with a logo on it are not taxable.
It's your employer's responsibility to accurately report all of your earnings for the tax year. You say they didn't do this. This is an enormous problem. They have to fix it for you. If your employer doesn't correct your W-2 completely to be an accurate accounting of all of your money in/out between Jan 1 and Dec 31 of 2023, then you need to file an extension, or hire an accountant to file an extension if you're not comfy with this, and wait for your final W-2c to file your return. Then you should request reimbursement of these expenses from your employer. Your employer has a duty to do their end of this responsibly and accurately, and to keep you whole while navigating their errors.
posted by phunniemee at 4:38 PM on January 24, 2024 [2 favorites]
Gross wages you received from a single FEIN employer in the year 2023
The taxes (any and all) you had withheld from those wages
Any pretax (cafe 125) benefit plan premiums paid
Any 401k, HSA, FSA, commuter, or similar money you elected to contribute. 401k is your personal contribution only with no match, but if your employer matches for anything else those should be on there
Group term life value if relevant
Total health plan value
And a few other things that are less likely and probably not your situation or you would have mentioned them.
Your W-2 is not a statement of what you individually should owe in a tax year. It's just a one sheeter summarizing what happened for you in this single employer relationship. Your W-2 is also not a place for you to realize you made a personal error filling out your (for example) W-4 and expect your employer to go back in time to clean up. (I only add this because I've been asked to do this a number of times. Hi, I am responsible for payroll at my job.)
If your employer gave you something like a cash card or a trip as an employment reward in lieu of check wages, yes they should have reported that as taxable income for you. Technically yes you should report it if they didn't. Will anyone come after you if you don't? Very unlikely. Nominal gifts like a fruit basket on Christmas or a mug with a logo on it are not taxable.
It's your employer's responsibility to accurately report all of your earnings for the tax year. You say they didn't do this. This is an enormous problem. They have to fix it for you. If your employer doesn't correct your W-2 completely to be an accurate accounting of all of your money in/out between Jan 1 and Dec 31 of 2023, then you need to file an extension, or hire an accountant to file an extension if you're not comfy with this, and wait for your final W-2c to file your return. Then you should request reimbursement of these expenses from your employer. Your employer has a duty to do their end of this responsibly and accurately, and to keep you whole while navigating their errors.
posted by phunniemee at 4:38 PM on January 24, 2024 [2 favorites]
Response by poster: I really appreciate all the context and detail of the responses so far, but it's not the question I'm asking. I fully understand what a W-2 is, what it should be for and how it relates to filing my tax return. I just really don't understand who bears responsibility for violating federal tax law when there are discrepancies between how the return is filed and how it should be filed correctly (either due to errors in the W-2 itself, or the return).
Maybe a little more context is due here. The problems in my paystubs have to do with "imputed income". I have received non-monetary compensation from my employer that has a monetary value upon which I am taxed. These things increase my tax liability, but do not increase the amount of money I've received as pay. What this means is that my gross wages as far as my W-2 is concerned is (salary income + imputed income), and what I've received as pay in my bank account is (salary income - employee benefit contributions - tax witholding). The fact that the imputed income was calculated wrong in my paystubs has led to both an incorrect W-2, and incorrect tax withholding across various federal (Social Security, Medicare) and state categories. Discrepancies in federal income tax withholding is no big deal, that's what the return is to resolve. The other things are considerably trickier, especially considering that I do not file a state return because of where I live.
posted by Cogito at 6:29 PM on January 24, 2024
Maybe a little more context is due here. The problems in my paystubs have to do with "imputed income". I have received non-monetary compensation from my employer that has a monetary value upon which I am taxed. These things increase my tax liability, but do not increase the amount of money I've received as pay. What this means is that my gross wages as far as my W-2 is concerned is (salary income + imputed income), and what I've received as pay in my bank account is (salary income - employee benefit contributions - tax witholding). The fact that the imputed income was calculated wrong in my paystubs has led to both an incorrect W-2, and incorrect tax withholding across various federal (Social Security, Medicare) and state categories. Discrepancies in federal income tax withholding is no big deal, that's what the return is to resolve. The other things are considerably trickier, especially considering that I do not file a state return because of where I live.
posted by Cogito at 6:29 PM on January 24, 2024
Best answer: Okay. If your employer has screwed up imputed income, which is absolutely possible and unfortunately easy to do, then your employer still needs to make it right.
Get this in email. Have they put in writing an exact understanding of what their calculation error was and the steps they're taking to correct this error? If so, great. You don't need to worry about anything else, just wait for your W-2c and then file your taxes with what you have had corrected.
If they haven't been able to effectively communicate exactly what went wrong, the dollar figures involved, the steps they're taking to correct this, and an estimated timeline for resolution, then you need to say this to your HR team (in writing):
"I'm concerned about my tax liability as a result of these errors and would like to consult with a tax professional to make sure I'm filing appropriately. How would you like me to submit my accounting costs for reimbursement?"
This tells them a few things. 1) You will be following the rules and 2) you expect your work to provide reasonable compensation to keep you whole from their mistakes. You will also be able to get your question about personal liability (which I'm not equipped to answer at all, and I'd guess isn't actually answerable by anyone on metafilter without a lot more detail) answered by this tax professional. And go to a real accountant, not the seasonal temp down at the H&R block.
When your employer makes an error, it's your employer's mistake to fix.
posted by phunniemee at 6:42 PM on January 24, 2024 [2 favorites]
Get this in email. Have they put in writing an exact understanding of what their calculation error was and the steps they're taking to correct this error? If so, great. You don't need to worry about anything else, just wait for your W-2c and then file your taxes with what you have had corrected.
If they haven't been able to effectively communicate exactly what went wrong, the dollar figures involved, the steps they're taking to correct this, and an estimated timeline for resolution, then you need to say this to your HR team (in writing):
"I'm concerned about my tax liability as a result of these errors and would like to consult with a tax professional to make sure I'm filing appropriately. How would you like me to submit my accounting costs for reimbursement?"
This tells them a few things. 1) You will be following the rules and 2) you expect your work to provide reasonable compensation to keep you whole from their mistakes. You will also be able to get your question about personal liability (which I'm not equipped to answer at all, and I'd guess isn't actually answerable by anyone on metafilter without a lot more detail) answered by this tax professional. And go to a real accountant, not the seasonal temp down at the H&R block.
When your employer makes an error, it's your employer's mistake to fix.
posted by phunniemee at 6:42 PM on January 24, 2024 [2 favorites]
Oh and if your employer won't engage with you and they are screwing around your pay, you file a complaint with the Department of Labor.
posted by phunniemee at 6:47 PM on January 24, 2024 [1 favorite]
posted by phunniemee at 6:47 PM on January 24, 2024 [1 favorite]
Your employer is obligated to work to resolve the issue. At the same time, you also are obligated as a taxpayer to file correctly to the best of your ability. The IRS discusses this more in their FAQ about incorrect W-2s found here.
Form 4852 is recommended in the FAQ response above. It is a substitute for incorrect and missing W-2s that an be filled out by the taxpayer. More info on that is here. There is also a number to call so the IRS can follow up with your employer. It’s important that you communicate the accurate information, especially since you mentioned that they withheld excessively from your pay. If that withholding never made it to the IRS, they need to know about the inconsistency.
posted by donut_princess at 7:15 AM on January 25, 2024
Form 4852 is recommended in the FAQ response above. It is a substitute for incorrect and missing W-2s that an be filled out by the taxpayer. More info on that is here. There is also a number to call so the IRS can follow up with your employer. It’s important that you communicate the accurate information, especially since you mentioned that they withheld excessively from your pay. If that withholding never made it to the IRS, they need to know about the inconsistency.
posted by donut_princess at 7:15 AM on January 25, 2024
Also, yes, echoing that this is a tax issue for which it is worth consulting a CPA.
posted by donut_princess at 7:30 AM on January 25, 2024
posted by donut_princess at 7:30 AM on January 25, 2024
You're not liable for anything yet, and the IRS, up until April 15th, is only concerned that you have paid taxes according to what has been reported to them (regardless of the accuracy of that reporting). It's not "fraud" to screw up taxes or reporting.
You have two options.
If this gets cleared up before tax day (which it seems it should). Submit the correct paperwork, and you'll get a refund for any overpayment made to the IRS. Nothing in your description indicates anything that would make you responsible for "paying" more to the IRS. Even if you did, you can always get this back with amended returns.
If it's not cleared up by tax day you can do one of two things. 1. Pay taxes as reported and amend your taxes later. 2. File an extension and deal with it once this is resolved.
Key to these routes. Taxes get effed up all the time. IRS just wants to be paid what they "think" they're owed on April 15th. You can always "fix" these mistakes with amended returns or extensions.
posted by bitdamaged at 7:45 AM on January 25, 2024
You have two options.
If this gets cleared up before tax day (which it seems it should). Submit the correct paperwork, and you'll get a refund for any overpayment made to the IRS. Nothing in your description indicates anything that would make you responsible for "paying" more to the IRS. Even if you did, you can always get this back with amended returns.
If it's not cleared up by tax day you can do one of two things. 1. Pay taxes as reported and amend your taxes later. 2. File an extension and deal with it once this is resolved.
Key to these routes. Taxes get effed up all the time. IRS just wants to be paid what they "think" they're owed on April 15th. You can always "fix" these mistakes with amended returns or extensions.
posted by bitdamaged at 7:45 AM on January 25, 2024
> I just really don't understand who bears responsibility for violating federal tax law
You as the taxpayer have to pay the proper tax.
As others have said, criminal charges are extremely unlikely in this scenario.
As to penalties, you might have a claim if you have to pay a penalty based on the employer's error. But right now the deadline is still nearly three months away, and you know about the problem now. You have time to get it fixed.
Your refund, if you get one, will be delayed. There is no recourse for that.
posted by yclipse at 11:13 AM on January 25, 2024
You as the taxpayer have to pay the proper tax.
As others have said, criminal charges are extremely unlikely in this scenario.
As to penalties, you might have a claim if you have to pay a penalty based on the employer's error. But right now the deadline is still nearly three months away, and you know about the problem now. You have time to get it fixed.
Your refund, if you get one, will be delayed. There is no recourse for that.
posted by yclipse at 11:13 AM on January 25, 2024
« Older Costco laptop purchase with Allstate protection... | Used engine installed by Toyota Dealership dead in... Newer »
This thread is closed to new comments.
All the IRS wants is a good faith effort from you to file and pay timely, assuming you aren't owed a refund.
You can always request an extension to file, and they will grant you that, which gives you a few more months to sort out the situation.
In a worst case scenario you might get something like a CP 2000, but they give you time to respond to that and correct any weirdness. I had a situation where my company's payroll provider thought I'd been paid $17K more than I actually had. It wasn't fun but we resovled it with a letter.
posted by Alensin at 4:04 PM on January 24, 2024 [3 favorites]