Tax Strategies, Inc.

Payroll Departments and Withholding Errors

The clerical employees of a payroll department are not specifically trained for this job, do not have specific educational requirements for the job, are not well supervised, and have high turnover. Mistakes and under-withholding problems are very common. Their mistakes become your problem.

 

Knowing this, employees must act defensively. They must retain all pay stubs, and keep records of all payments and withholdings. This is the only way to verify the accuracy of the Form W-2 at the end of the year.

In the unlikely event of a bankruptcy or closure of your employer, you may not get a W-2. Your records of federal and state withholding can become very important.

 

Also, to prevent under-withholding problems surfacing after year end, at tax time, when the employee and accountant are both powerless to respond, the defensive and responsible employee and accountant should evaluate the adequacy of the federal and state withholding. The withholding percentage should be compared to the effective tax rate, rather than the tax bracket. In conservative planning, there should be some extra withholding so that the taxpayer is comfortably safe, not in danger of a large (surprise!) tax bill on April 15th.

 

An extra $20 of withholding per week will not affect most people. This is insignificant, pizza and ice cream money. Accumulated over the course of an entire year, it will add up to $1040. This can make a positive difference at tax time, especially if the husband and wife both do it.

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