How to handle rounding error on W2, W3, DE 3BHW, DE 3HW?

I am a household employer of one employee.

How should I rounding errors that cause discrepancies between the sum of what we actually withheld periodically for SS, Medicare and CA SDI v. what we should have withheld based on the year-end total gross wages?

And for the future, how should periodic amounts be rounded to minimize problems? In particular, should I always round down so that the employee is not penalized and any difference is simply paid by the employer (me)?

Consider the following hypothetical. We pay a daily wage of $70.85 gross and $65.00 net, withholding $4.39 SS (at 6.2%), $1.03 Mc (at 1.45%) and $0.43 SDI (at 0.6%).

If the employee works a total of 104 days, the year-end totals are $7368.40 gross, $6760 net, $456.56 SS, $107.12 Mc and $44.72 SDI.

But based on the gross, the totals should be $456.84 SS, $106.84 Mc, and $44.21 SDI.

Will the federal and state agencies overlook such small differences? Or will they raise flags, resulting in correction notices?

With the DE 3HW in particular, the online form performs the computation, resulting in $44.21. Even if I filled in the blank form by hand, the form includes the computation. That is, Wages in box D1 times SDI% in box D2 should equal the total in box D3.

For the future, should the withheld amounts in the hypothetical example have been $1.02 Mc and $0.42 SDI so that, at worst, we underwithhold from the employee, and the employer makes up the difference?

Reply to
curiousgeorge408
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Is this issue really worth losing sleep over? The IRS (and I imagine all state tax departments) do things to the nearest dollar, not pennies.

The accepted convention is to round UP if the result of a calculation is 50 cents or more. Round DOWN if the calculation result is 49 cents or less. Not perfect, but perfectly acceptable.

Reply to
Herb Smith

Don't worry about rounding It just isn't worth the time

-----> real address on hobokeni or hobokenx

Reply to
Benjamin Yazersky CPA

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