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Fix prior year under withholding of taxes

SOLVEDby QuickBooksQuickBooks Desktop PayrollUpdated April 23, 2021

Learn how to fix prior-year under-withholding of Additional Medicare Tax.

Do you have an employee who earned more than $200,000 in Medicare wages? But you didn't report the wages subject to the Additional Medicare Tax on the original filings. And you didn't withhold the additional 0.9% tax from the employee's wage.

We guide you through the steps needed to fix the prior-year under-withholding.

Note The Additional Medicare Tax is still in effect for tax year 2018. If you don't already have this tax set up and attached to your employees, see our detailed Additional Medicare Tax User Guide for QuickBooks for instructions on how to set up this tax in QuickBooks Desktop.

IRS guidance

The latest announcement from the IRS updates previous procedures for correcting and reporting under-withheld Additional Medicare Tax. The new guidelines instruct employers to amend filings for errors discovered after the close of the tax year, however, with limitations.

The new IRS guidelines for Prior year nonadministrative errors instruct that an employer should correct only the taxable wages and tips subject to Additional Medicare Tax withholding reported on the original payroll return (Form 941), but may not correct the Additional Medicare Tax withheld (column 4 in the corresponding corrected 94-X return) because the error involves a previous year and the amount previously reported for the employee represents the actual amount withheld from the employee during the tax year (as reported on the employee's Form W-2).

For more information about Additional Medicare Tax withholding, see the Instructions for Form 941. You can go to IRS.gov and search for Additional Medicare Tax.

For additional information on how corrections are reported, see the instructions for the corresponding Form 94-X.

In summary:

  • You may correct only the taxable wages originally reported on Form 941, 943, or 944 filings, however you may not correct the taxes withheld
  • Because taxes withheld cannot be adjusted on your corrected payroll returns, you may not correct the employee's Form W-2

Help preparing and filing corrected returns

Because of the limitations the IRS has imposed on how employers correct and report under-withheld Additional Medicare Tax, QuickBooks Desktop Payroll does not support the correction of payroll returns for under-withheld Additional Medicare Tax.

Corrections must be prepared and filed manually with the IRS.

However, for convenience, the following are direct access links to the corrected returns and their instructions.

Payment of Under-withheld Tax

Payment of the under-withheld tax should be settled by your employees as part of their income tax filing process.

However, because this tax is required to be collected and paid by the employer during payroll you may still be liable for the under-withheld tax if you cannot prove your employee has paid the tax.

The IRS has designated Form 4669 to be used to demonstrate your employee has settled the under-withheld tax. As a preventative measure, Form 4669 can be completed for each affected employee and stored with your tax records.  If information is needed by the IRS, this form will allow you to demonstrate to the IRS that the under-withheld tax has been paid by your employee.

To complete Form 4669, Statement of Payments Received:

  1. Get a separate form from each employee for whom you under-withheld the tax.
  2. Complete Part 1.
  3. Have the employee complete Part 2 & 3, and return the signed form back to you.

More information about Additional Medicare Tax

For more information on Additional Medicare Tax, review the following:

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