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The pain of wrong W-4 numbers
Dear Tax Talk:
Help! I am single with little in the way of
tax breaks. I made $24,000 in wages and only $1,330 was withheld
for federal taxes. What happens if you know you filed zero on your
W-4 form and realize at tax time that your employer has been withholding
based on five deductions? For the first time in my life I owe taxes:
$1,400 for federal and almost $200 to California because my employer
based my withholding on wrong information that I did not supply.
I am in the process of having my company pull a copy
of my original W-4 form, but I know someone has to pay and this
is a financial hardship for me. If my employer made an error, is
it in any way responsible or liable? I have been with the company
for three years and didn't pay taxes before and did not request
changes for my withholdings at any time.
Laurel
Dear Laurel:
If you've been working for the same company for three years,
you should have noticed that your net paycheck changed as a result
of having too little tax withheld. That said, even though your employer
may have made a mistake, you're the one who benefited and will be
held primarily liable for the tax due.
If you wanted to make a stink about it, you may get
your employer in trouble, but you'd probably end up unemployed.
If in fact your employer made the mistake, perhaps you can get them
to advance you the unpaid taxes and recover it through future payroll
deductions. At least this way you can avoid paying the Internal
Revenue Service and California interest and penalty on the underpaid
tax.
If your employer is not willing to help you out and
you can't otherwise borrow the money, then you'll need to work out
a payment plan with the tax authorities. IRS
Form 9465 is used to request a payment plan.
Unfortunately, when you enter into a payment
arrangement, the IRS charges you interest and a late-payment penalty.
The agency's current interest rate is a relative bargain at 6 percent,
but the late-payment penalty of 0.25 percent per month adds another
3 percent a year to that rate. If you can't pay California in full,
check out the state's collection procedures on its Web
site.
-- Posted: Feb. 21, 2002
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