How to resolve incorrect tax withholding
Please discuss the options listed below with your tax professional to find the best, legal resolution to this issue. This list is not comprehensive.
- One option is to let the withholding stand as is. Over-withheld income tax will correct itself when the employee files a tax return.
- Another option is to make a correction in future pay periods by withholding less than the amount calculated using the Override feature shown below. Once the over-withholding has been resolved, make sure to blank out the Override field.
Use the Override field to correct over-withholding
In the following example, the employee's normal federal withholding is $295.00. To fix the over-withholding, $200.00 may be withheld for the next few paychecks. To force the amount of withholding, $200 is entered in the Override field in the Employee>Tax data screen. Once the over-withholding has been corrected, the Override field must be cleared.
As you can see on the employee's check, the override amount was used:
- Try to reach an agreement with the employee that under-withheld income tax will stand as is and the employee will be responsible for any underpaid taxes. You may also want to discuss which of you will be responsible for any penalties arising from the under-withholding.
- Catch up the missed withholding amounts in the months ahead by withholding additional tax from the employee's check until the under-withholding has been corrected. See the Extra field option below.
- The employer can make up the under-withheld amounts and not charge the employee.
If you have under-withheld, you can use the Extra Field to "catch up". The software is designed to calculate the tax based on the Marital Status and Allowances. It then adds the amount shown in the Extra Field, if it exists. In the screen below, an extra $5.00 will be withheld from the employee's paycheck until the Extra field is cleared. Please make sure to clear this field once the under-withheld amount is satisfied.
If the normal withholding calculated is $295 and $5.00 is entered in the Extra field, the withholding on the employee's check is $300 as shown below.