Form W-4 Exempt Error…Whose at Fault? Who Should Pay?

The Form W-4 is one of the basic forms that payroll must handle during the course of a normal payroll processing. But that doesn’t mean it is not an important document that needs to be processed with care and diligence.  And as with all things, payroll is human and can make mistakes.  But if a mistake is made on inputting a Form 2016 form W-4 face onlyW-4–say going from exempt back to having taxes withheld– who should “pay” for the error…the employee who didn’t catch the error for the entire tax year, or the payroll person (employer) who made it and didn’t follow up with an edit?  This is one of those questions that seems like it can go either way.  For some will respond (usually payroll professionals) by saying that the employee should have noticed that taxes were not being withheld and said something before the end of the year.  But others (usually the employee) will say it is payroll’s fault therefore they should be responsible for my taxes being correct since I did submit a valid Form W-4 as required by the IRS.   It can be argued that since the employee was not deprived of any money he should have the means to pay his taxes. However, that being said, the catch is if the employee is underwithheld the IRS can assess a penalty against the taxpayer (employee). In turn, the taxpayer (employee) could report the employer is at fault for failing to withhold. Under a IRS Office of Chief Counsel letter released on 9/30/11 it appears the IRS would side with the employee as regards to the penalties. See the excerpt from the letter below.

So what is the answer to the question?  Unfortunately it is the same as with all payroll questions…avoid making the mistake in the first place.  Don’t take the “easy” tasks for granted. Have edits in place to ensure that all Forms W-4 are audited before and after they are input into the payroll system.  And as I have always done on my payrolls after finding out that my staff has made such mistakes, implement a program to verify all exempt employees each quarter not just unless the employee complains. I have found that running a list of exempt employees each quarter and taking the extra time to verify they still want to be exempt goes a long way towards catching these errors.  This is especially true during this time of the year when many employees who claimed exempt in 2015 are not doing so in 2016. For this is when the errors are more likely to occur.

irs penalties

Anyone for E-IWO (Except SC)

Well the day has finally come when all the states (except South Carolina) are now offering electronic Income Withholding Orders or e-IWO.  What exactly is an e-IWO and how does it differ from getting cheiwoild support orders on paper?  Very simply, by using the e-IWO employers receive their Income Withholding Orders (IWO) for child support electronically as a pdf file rather than through the snail mail on paper.  This saves a lot of time and expenses on the side of the state.  But the employer also gets to acknowledge the receipt electronically which saves time and money on that side as well.  In addition, the same portal also allows the employer to report terminations and lump sum payments electronically, again saving time and money.

All you need to do to partake in this system is to implement the e-IWO in one of two ways.  For large (I mean really large) employers with thousands of child support orders you could set up a system-to-system process.  This obviously is going to take a lot of programming and time.  But if you are a smaller employer with maybe only dozens of child support orders or less you could set up the No Programming option.  This is just like setting up your phone really. You just set up the port etc. and then begin receiving the IWOs.  Takes just a few weeks but well worth it in terms of time and money saved.

Want more info before making the plunge to electronic then check out the Office of Child Support Enforcement’s website on e-IWO. There you will find all the info you need on setting up the different systems as well as FAQs. Want to speak to someone directly about the program.  By all means contact William Stuart @william.stuart@acf.hhs.gov.  Bill will be glad to answer your questions, give you back ground info and even give you info on other employers, who are just like you, so you can speak with them about the system.

Electronic is the wave of the future for payroll so don’t be left out and holding the paper form when everyone else is going paperless with their IWOs.  The system is up and running so now is the time to check it out and start using it.

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Keeping it 100% or Why Can’t We Just Leave It?

one hundred percent goldIt still amazes me sometimes when I see questions from my fellow payroll professionals about how accurate we have to be when it comes to tax deposits and reports.  As we all know the curse of being a payroll professional is that everything you do has to be 100% correct.  No 99% accuracy on tax deposits, no 99.9% pure on tax reporting. Most of us have had to face the question, do I really have to redo this for such a small error?  So I always get a giggle when I see the question come around on the boards about correcting something that isn’t quite 100% accurate.  I know its from someone new to our profession just asking and hoping for a certain answer but knowing in their hearts they won’t hear it. For example, a couple of weeks ago on the one of the listservs I follow someone asked the following:  We left off the employee contribution to the HSA on the Forms W-2.  Since they have already gone out to the employees do we just leave them alone?

You know the results of the responses without my listing it but let me summed it up with this short excerpt: … You can’t just say “oh, well” and dismiss the problem after statements are mailed to employees…In other words no matter what, payroll must be 100% accurate, 100% of the time.  Welcome to the world of the payroll professional! But then again, we wouldn’t want it any other way.

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