4 benefits & pay mistakes that draw IRS ire
October 17, 2008 by Bill MeltzerPosted in: Compensation, Compliance, In this week's e-newsletter, Latest News & Views
The IRS is always on lookout for areas where many organizations withhold too little tax from their employees’ paychecks.
Here are four areas where employees need to pay special attention:
- 401(k) contributions. Although 401(k) contributions aren’t subject to federal income tax, they are subject to FICA and Medicare taxes
- Travel and expense reimbursements. The IRS is looking for untaxed reimbursements that fail to meet the criteria for legit business expenses. See here for a brief overview of the requirements
- Cash bonuses and incentives. Even small-value cash awards and gift cards are considered taxable, and
- W-4 forms. The IRS can go after employers who permit workers to claim undeserved exemptions on their W-4 forms. Crucial: If you didn’t take out enough taxes, you can’t allow an employee to file a new W-4 form to correct the discrepancies. Otherwise, the IRS can go after your organization to pay both halves of all unpaid taxes.
October 23rd, 2008 at 1:38 pm
W-4 forms:
How can the employer be responsible for making sure that employees claim the right amount of exemptions? How can we question what they put on that form?
October 23rd, 2008 at 2:02 pm
I don’t understand the problem with W-4 forms … how can I determine whether an employee should have specified 3 exemptions instead of 10? A) It’s none of my business how my dependents s/he has and/or whether they are blind or over 65; B) I am not supposed to give out any tax advice or recommendations on what to claim; and C)I was under the impression that the only time I over-rode what an employee told me on their W-4 is when I get a letter from the IRS. Lastly, why can’t an employee fill out a new W-4 any time in the year s/he wants to in order to make mid-year adjustments? Something has to be done if a mistake was made when the employee filled out the first W-4; if not filling out a new one, then what?
October 28th, 2008 at 6:18 pm
Not sure what the author means by the organization having to pay both halves. I think that’s a referral to FICA and Social security taxes. That doesn’t have anything to do with W-4’s. I was under the impression you only had to have proof of any exemptions over 10.
November 6th, 2008 at 3:03 pm
Employees complete their W-4 based on a number of things, one of which is their tax bracket. Most people who have filed tax returns know exactly what allowance to claim so as not to pay extra to the govt and not to pay out of pocket at tax time. Who are we to govern their allowances?
December 4th, 2008 at 2:22 pm
I agree with Lori, Mary and Pat. I do not understand how I can be held accountable for what an employee puts down as his/her exemptions.
December 11th, 2008 at 2:00 pm
This is sort of off the subject, however I am asking anyway, has anyone ever heard of a situation where a company over paid a person or persons on their end of year bonuses, and then later came and asked for part or all of it back because there was a calculation error? Is this legal? The bonus was part of the compensation plan for management level employees and since no one ever knows what they are suppose to get, or what anyone else gets, the employees have to take the company’s word that it was an overpayment. No mention of fixing the taxes taken out or fixing the W-2 later down the road, you must just presume they will do it.