Mistakes happen, no argument there. Whenever humans are involved, there are going to be mistakes. One “little” mistake can sometimes create a mountain of work to rectify and can be extremely costly – especially in the payroll world.
Let’s say that an employee was underpaid at the end of a calendar year. It is now 3 months into the following year and the error is discovered when the employee goes to file their tax return. What now?
Following are the steps that need to be taken:
- Confirm the error was made and confirm the underpayment amount.
- Calculate the gross pay, deductions, and payroll taxes and pay the employee the net. Does a portion of the amount need to be withheld and paid to the 401k provider? (If so, those records will need to be revised and provided to the 401k administrator).
- Pay the taxes to the proper taxing authorities (Federal (941 and Futa), State (Withholding and UI), any local taxes.
- Complete and file a 941-X, 940-X, Revised State Withholding Return, and a Revised State Unemployment Return for the company (and local taxes if applicable).
- Prepare a W-2C for the employee.
- File the W-2C with the SSA and the State.
- Prepare for penalty and interest that will be incurred because of the late deposits on the taxes.
Yep, mistakes happen – but it sure is worth checking and double checking to avoid as many as possible!