Withholding Computations for Unusual Circumstances to Avoid Under-withheld Tax Penalties

Employer federal income tax withholding is intended to collect, throughout the year, the approximate amount of the employee's tax for the year. The wage bracket and percentage methods are the primary methods for computing the amount to withhold, but sometimes they just don't seem to get the right result.

When supplemental wages are added to the equation, the prescribed aggregate method and optional flat rate method frequently result in too much or too little withholding.  Payroll professionals sometimes experience a flood of revised W-4 Forms just before and after scheduled bonus payments. This creates additional work and opportunities for mistakes for the payroll department and may not affect the withholding in the way the employee expected.

• How to compute the "correct" or target annual withholding to avoid underestimated tax penalties
• The part-year withholding method - what it does, when it works, and how to use it
• Which methods require an employee request and which are employer options
• How to test an employer-designed method to assure compliance with IRS requirements
• Which methods smooth withholding when compensation varies from pay period to pay period
• Which methods soften the impact of bonus payment withholding without changing the W-4
• How regular use of the cumulative wage method automatically adjusts for fluctuating compensation
   

• The requirement to withhold and Form W-4 claims
• The percentage and wage bracket methods with an example of the use of the daily or miscellaneous withholding tables   
• Methods used to compute withholding on supplemental pay including examples
• Automated systems tables
• Annualized wage method - what it does, when and how to use it  
• Average wage method - what it does, when, and how to use it
• Cumulative wage method - what it does, when and how to use it
• Part-year employment method - what it does, when and how to use it
• Other methods and maximum permissible deviations rules
• Non-resident alien withholding rules
   

The danger for employers and payroll professionals is that failure to withhold the correct amounts per employee W-4 parameters may result in penalties and possible personal liability for the amounts the employer failed to withhold imposed on individuals deemed responsible for correctly collecting and paying employee taxes.

This course will provide knowledge of alternative methods to compute withholding under special circumstances. In some cases, these methods can be used in place of employees making multiple changes to Form W-4 to avoid over-withholding on supplemental or irregular wage payments, such as commissions or bonuses.

• Payroll Supervisors and Personnel
• Payroll Consultants
• Payroll Service Providers
• Public Accountants
• Internal Auditors
• Tax Compliance Officers
• Enrolled Agents
• Employee Benefits Administrators
• Officers and Managers with Payroll or Tax Compliance Oversight
• Company/Business Owners
• Managers/Supervisors
• Public Agency Managers
• Audit and Compliance Personnel /Risk Managers
   

Patrick Haggerty is a tax practitioner, author, and educator. His work experience includes non-profit organization management, banking, manufacturing accounting, and tax practice. He began teaching accounting at the college level in 1988. He is licensed as an Enrolled Agent by the U. S. Treasury to represent taxpayers at all administrative levels of the IRS and is a Certified Management Accountant. He has written numerous articles and a monthly question and answer column for payroll publications. In addition, he regularly develops and presents webinars and presentations on a variety of topics including Payroll tax issues, FLSA compliance, information returns, and accounting.