Each year around tax time, we hear from a handful of clients who have employees who didn’t have enough (or any) withholding taxes taken from their pay checks. It could have been for a number of reasons such as: High exemption calculation from their W-4 form, low pay that didn’t trigger the tax tables, or a high number of pre-tax deductions. There are many items that could contribute to low or no withholding; however, this is only a limited list.
Tax season is likely the first time an employee considers how much withholding has been taken from their paychecks. By law, employees are to be provided on each pay date with a stub or other visual that shows them the calculation of the gross pay of their check, deductions, taxes, and net pay. Also by law, employers are required to withhold federal, state and local taxes (where applicable) and remit the payments on the employee’s behalf.
Many times, employees allow the entire year to go by without reviewing this information, and then they are surprised at tax time when taxes are owed. This causes a lot of anxiety that could have easily been avoided.
Employers should make sure they are using the most updated W-4 form and entering this information correctly and promptly into their payroll system so all tax calculations are accurate over the course of the entire year.
This is also a great time to review your payroll journal reports to review which employees may not have had withholdings taken. It’s a gesture to check-in with them to ensure they realize the calculation of their pay. Imagine being the employee who didn’t realize taxes were at $0 for the year, and then finding out in time to make the correction – reducing their possible liability at tax time.