Discussion:Penalties
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Discussion Forum Index --> Basic Tax Questions --> Penalties
Discussion Forum Index --> Tax Questions --> Penalties
| 21 October 2009 | |
| Does anyone have any idea of penalties to an employer who made an honest mistake on W-2's and overstated the income tax withheld? He now needs to correct 2008 w-2's and 940 last quarter report and is asking me how much do i think it will be? I have no idea because I have not experienced this problem before. Of course, employees will have to re-file tax returns also. | |
| 21 October 2009 | |
| The rate for honest underpayments is .5% per month, capped at 25%. | |
| 21 October 2009 | |
| I don't believe the late payment penalty will apply to the employer. It sounds as though Mary's client paid in X dollars in FIT withholding, but reported a larger amount (X + Y) on his employees' W-2s and on the fourth quarter 941 and the 940. There is no underpayment if the correct amounts actually withheld were actually paid in. He intends to issue amended 2008 W-2s and an amended fourth quarter 941 (and 940) to show the amount of tax that was actually paid in. (Has the IRS not billed him for the difference between the amounts reported on the 941/940 and the amount he paid in?)
The employees will owe additional taxes for 2008 because they claimed credit for more than was actually withheld from their paychecks. They, not the employer, will be subject to late payment penalties. A conscientious employer would reimburse them for that, I think -- grossed up for the tax effect of the reimbursement, of course. | |
Mikex2e7n5 (talk|edits) said: | 21 October 2009 |
| Katie
Would they really be assessed late payment penalties if they filed a 1040X and paid at the time of filing ? | |
Death&Taxes (talk|edits) said: | 21 October 2009 |
| In my many, many years, I've never seen a late filing penalty on a 1040X that amends a timely filed return. They will probably only be charged interest. | |
| 23 October 2009 | |
| If he files a 941-X to correct the mistake he will be charged interest but no penalties provided he pays with the amended return or when he gets his first bill. | |
| 24 October 2009 | |
| As I understood the question, the employer is not underpaid, it is over-reported. No additional amount would be due on the 941X, therefore no penalty or interest.
The employees presumably are underpaid because, not noticing or knowing that the W-2s showed more tax withheld than was actually paid, claimed credit for more than the employer actually paid in on their behalf. So they owe additional taxes. Mike and D&T are probably correct that if amended returns with the corrected W-2s and payment of the additional tax are filed, there will be no late payment penalty. I'd expect they'll be charged interest, though. | |
| 25 October 2009 | |
| You may need statements from the affected employees to complete the 941-X. | |
| 25 October 2009 | |
| Under IRC section 6682, there are civil penalties for a false statement made in connection with a withholding. See - http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00006682----000-.html
However, if there's a history of compliance I doubt this would be imposed. What I would do is re-file the 940s and check the box where it says 'amended'. Then have the employees file 1040x's. At the employee level, the overstatement on the W-2s will have caused the employee to either underpay the tax due or receive an excessive refund. In either event, the remedy is making up the difference, and paying interest on that difference. I agree with D&T. The interest will not be abated here since this is not due to IRS error. Since the employees have reasonable cause in this case, they should not be penalized under the section 6651 regime for late payment. | |
| October 25, 2009 | |
| A false W-2 does not "result in" insufficient withholding, so there won't be a 6682 penalty. The false W-2's lead to a penalty under 6674 only if they were willful. I don't know if a mere false 941/940 (where the employer properly collects and pays over) constitutes a failure to "truthfully account for" withholding; if so, there would be a penalty under 6672, but, again, only if it was willful. And, of course, there are criminal penalties that won't apply without criminal intent. | |
