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lorinb
Level 2

payroll tax mistakenly not withheld

After running the w2's for last year, we realized that 2 employees were mistakenly not set up to have California state tax withheld from their checks. So, no state tax amount is listed in box 17. Is there anyway to rectify this situation? Can we manually figure out how much should have been paid? Are we responsible or the employee? What happens when the employee needs to get his taxes done?

I have already made the necessary changes for the employees for this year so this does not happen again!

6 Comments 6
Ashley H
QuickBooks Team

payroll tax mistakenly not withheld

Good evening, @lorinb. No worries, I'm here to help you correct your W-2 tax forms.

 

If you haven't filed yet and your employees received their W-2, then you can follow the steps I've provided below to correct the information:

  1. Reprocess all W-2 forms and a W-3 form with the correct amounts. File the corrected forms with the government.
  2. Issue a new W-2 form to each employee who previously received an incorrect W-2. On the employee's copies of the corrected form, write "Corrected" at the top of each copy. You do not have to issue a new W-2 if the previous one was correct.
  3. If the employee has not yet filed a tax return, they should file using the new W-2 and destroy the previous one.
  4. If the employee has already filed a tax return with an incorrect W-2, they must file an amended return using Form 1040X and the corrected Form W-2. For these forms, visit the IRS Web site.

Here's an article that provides details on how to correct your filed W-2s.

 

After following the steps listed above, then you can issue the corrected forms. Here's how:

  1. Issue the W-2c form to each employee who received an incorrect W-2 form.
  2. If the employee has not yet filed his or her tax return, the employee should file Form W-2c along with the incorrect Form W-2. Form W-2c only reports corrections to Form W-2 and may not have all the information necessary to complete the tax form.
  3. If the employee has already filed an incorrect W-2 form, the employee should file an amended return, using Form 1040X and the new W-2c form. For these forms, visit the IRS Web site.
  4. If your company has submitted incorrect W-2 forms to a state or local agency, file W-2c forms with the appropriate correction form as required by your state or local agency.
  5. Contact your state or local tax agency to confirm the correct procedures.

 

If you have any other questions or concerns, don't hesitate and reach out. Have a wonderful day.

BigRedConsulting
Community Champion

payroll tax mistakenly not withheld

RE: Is there anyway to rectify this situation? 

 

To fix it right, you will need to accrue the correct tax for the employee using a payroll adjustment.  Accrue both the taxed wages and the tax.

Then re-file at least the last quarter's state payroll form and pay the additional tax.  You may need to eat the cost, as it's not usually considered appropriate to demand the withholding from the employee at the end of the year after messing up like this and not following the Employee's W-4 (or CA state W-4 equivalent.)

 

RE: Can we manually figure out how much should have been paid?

 

You could use the state tax tables and manually calculate the appropriate tax for each check.  If the employee is a salaried employee, then it's easier.

 

RE: Are we responsible or the employee?

 

You probably are.  At the least you didn't follow the employee's direction from their W-4, so you own that.

 

RE: What happens when the employee needs to get his taxes done?

 

Nothing, as you will have fixed this as above.

 

But really, you should consult with a payroll tax advisor or the state of California to determine what to do.

Brenda25
Level 1

payroll tax mistakenly not withheld

We have discovered a similar issue, when we upgraded our Quickbooks program the state withholding info for each employee was not transferred over.  Therefore for several months now, no state taxes have been withheld from paychecks  Is there anyway to rectify this issue for both the employees as well as the employer taxes?  Would  appreciate any help available to resolve this huge issue.  Thanks

KlentB
QuickBooks Team

payroll tax mistakenly not withheld

Hi Brenda25,

 

I'm here to help you correct your payroll.

 

First, let's make sure to set up the state taxes for those employees. Please know that you may need to set up the applicable payroll items for the state first if your employees live or work in a state that is not set up in QuickBooks Desktop. Here's how to add state taxes to an employee:

 

  1. Select Employees from the top menu bar.
  2. Choose Employee Center.
  3. Double-click the employee's name, then go to the Payroll info tab.
  4. Click Taxes, then select the State tab.
  5. Enter the necessary information in the State Worked or State Subject to Withholding areas, then check SUI or SDI options.
  6. Go to the Other tab to enter the local taxes.
  7. Click the Item Name column.
  8. Select the local tax you want to add from the drop-down arrow.
  9. Hit OK to return to the Edit Employee window, then click OK again to save the changes.

Second, you'll have to conduct a payroll liability adjustment to accrue the employee's state taxes and correct the year-to-date/quarter-to-date payroll information. You can refer to your state tax table to be guided in calculating the taxes. Follow these simple steps to adjust your payroll liabilities:

 

  1. Select Employees from the top menu bar.
  2. Go to Payroll Taxes and Liabilities and choose Adjust Payroll Liabilities.
  3. Select the appropriate type of adjustment and name of your employee.
  4. Choose the Item Name you want to adjust, then enter the amount of the adjustment.
  5. Select Accounts Affected and then OK.
  6. Repeat for other employees if you need to, and select OK.

For more information about this process, you can read this article: Adjust payroll liabilities in QuickBooks Desktop.

 

Lastly, you can go to the Pay Liabilities tab to print a liability check (if you're going to pay the taxes right away). To get reimbursed for the employee paid state taxes, you can deduct the amount to their next succeeding paychecks. 

 

I also recommend consulting your tax advisor in handling those taxes to ensure compliance.

 

In case you'll need to track where your company stands in terms of employee expenses, you can customize payroll reports.

 

Do you have any other questions in mind? Feel free to leave them below and I'll get back to you as soon as I can.

Flmelectric
Level 1

payroll tax mistakenly not withheld

Hi lorinb,

 

I actually did the same thing, but found out while doing W2 for 2021. How did you end up correcting this? 

 

Instead of choosing single, the do not withhold option was chosen.

 

I appreciate any advice. 

Ryan_M
QuickBooks Team

payroll tax mistakenly not withheld

Hi @Flmelectric,

 

I'll help you out with your query about the correction process of an incorrect W-2 form for your employees in QuickBooks Desktop (QBDT).

 

The way to proceed with this situation depends on the type of payroll service you use. 

 

For example, if you have QBDT Payroll Basic or Payroll Standard, you'll have to create and file a W-2c form with the Social Security Administration by hand. 

 

In case you have a different payroll version, check out this article: Fix an incorrect W-2. It has a complete set of steps on how to fix issues with your W-2 forms with different payroll versions you have. 

 

Tag me in your comments below if you have other questions about your W-2 forms in QBDT. I'll handle them for you. 

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