Penalized for taxes paid, then re-classified

"Tony Vincent" wrote

I'm unclear why you think this happened. Social Security and Medicare are pretty straight forward to compute.

The W-4 has no bearing on Social Security and Medicare withholding. So blaming the company for not following the W-4 as the reason the Social Security tax was "under-withdrawn" isn't going to fly very far in court.

You probably need to gain a clearer picture on why an adjustment to Social Security was necessary. Could it be there was some benefits that you received that needed to be "grossed up" and included in your W-2? In that case the only place to get the Social security tax is from the already withheld income tax.

$400 due in tax wouldn't have any penalties associated with it. If that's straight penalties, you need to be absolutely positive that nothing else in your return would give rise to the additional tax - nothing else - because their attorney will dissect your return line by line for the jury. I for one, don't want an opposition attorney and a dozen of my "peers" from the county ogling over my return.

There are ways to reduce or eliminate penalties. Have you looked into that? Once you have a better picture of what happened, explain it to the IRS in writing requesting the penalty be abated. They often will.

The employee.

Tony,

You can always file a suit in Small Claims Court against the company. You relied upon them, to your detriment, that they would follow the proper laws and procedures to withhold taxes from your paycheque. They should pay any penalties or interest on your behalf.

Lighthope

Pearls of Wisdom - Priests would make great husbands. They already took vows of poverty, chastity, and obedience!

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Tony,

Youi were an employee. As such you filled out a W-4 tax form. For some reason your company failed to use the information in your W-4 form to assess and pay some taxes. You use an accountant to prepare your taxes. He recently caught this error. He calculated the error and and penalty. You paid the IRS this sum, about $400. Yiou've spoken with the company. They checked their books but do not feel that they should reimburse you for these penalties. You ask for advice. You have a clear loss of about $400. Sounds like a Small Claims case to me so go to the court house and see if it qualifies for small claims in your locale. Also find out if expert witness fees are compensable since you'll need your accountant. Expect the company to also provide finance experts to explain why your accountant was wrong. I doubt you'll be allowed to sue for your own time spent on this business.

Good luck, Dave M.

I am baffled too... tax withholding is essentially a prepayment plan. The company takes part of your income and loans it on your behalf (interest free) to the US Treasury. As long as they withheld the standard amounts, I am not sure how you can get hit with a penalty. I am also not sure how they can "transfer" funds already withheld as Federal Income Tax to SS/FICA tax, since the funds for both taxes go into a common pool.

I am wondering if there is some tiny little detail you are not mentioning, e.g., you have significant income from sources other than this job and/or some supposedly tax-free perks of your job (perhaps the use of a company vehicle?) turned out to be taxable and/or your marital status changed.

Here are some more details:

- during the year, there was about a dozen transactions where Payroll corrected some of their prior errors or made other non-standard moves; some of those transactions "returned" more taxes than the amount taken when the incorrect payment took place;

- I bet, one day Payroll realized they underdid FICA, and, instead of contacting me, just re-qualified some of the funds that went to the joint SS/FICA pool to be known as FICA. It made me, rather than the company, "ultimately responsible" for under-payment. Otherwise, the blame would remain where it belonged.

"Tony Vincent" wrote

Not to be too flippant, but if they withheld all the taxes correctly, you would have had a smaller net pay. Since you already have the net pay, there is nothing they can do except make adjustments between the FICA and Federal taxes - already withheld. That is, unless you were willing to send your employer a check to repay some of the under withholding that happened. And, since it seems you are gung-ho about placing some *blame* on someone for some reason, a trait you probably didn't just pick up, I suspect that no one at the company wanted to ask you to repay your higher-than-it-should-have-been net pay after you and the company parted ways.

As I mentioned earlier, explain all the facts the best you can to the IRS and ask them to abate the penalties. It seems they should do that given the limited facts you presented here.

There is no form for requesting abatement of a penalty. You write a letter explaining your request.