Correcting Withholding Errors

What do I do if I withheld the wrong amount from an employee?

If you accidentally withhold the wrong amount for state, local or federal tax withholding, it is usually easiest to correct the error by adjusting the withholding amount in future pay periods. You can do that in one period or several, depending on the size of the error.

In this US, this case applies to income tax withholding for federal, state or local taxes, and to other deductions that you won't have to pay for yourself, if calculated incorrectly (e.g. child support).

NOTE-- Click one of the links here if you made an error in an employer tax or a fixed-payment employee deduction such as FICA or union dues.

If you made a small error in past state or federal tax withholding, follow these steps:

  1. Is it a really small error? If so, you can probably just ignore it.
  2. Is it a medium-small error? If so, you might want to talk with the employee, and see what they want to do. If they wish to adjust future withholding to correct the error, follow the steps below.

HINT-- Employee withholding usually is OK if within 10% of the theoretically correct amount. Errors in that range will only result in a tax refund (or tax bill) that is larger or smaller than expected.

If you made a large error, follow these steps:

  1. Decide on how quickly you want to correct the error, by adjusting withholding in future payroll.
  2. It may be good to talk with the employee, and work out a plan.
  3. Choose Preferences from the Options menu, and choose Expenses from the submenu.
  4. Turn on the checkbox for Allow Payroll Deduction Changes.
  5. Click OK.
  6. When you use the Write Payroll command, double-click in the Deduct column for that employee.
  7. Add to the calculated amount if you under-withheld, or reduce it if you over-withheld.
  8. Click OK.
  9. Repeat steps 6 to 8 for each pay period, until you have sufficiently corrected the error.

HINT-- You may want to write down the adjustment plan, or set up a spreadsheet to track the adjustments.

Click here for more about payroll in the Getting Started manual.
Click here for more about payroll in the Reference manual.

Click here to return to payroll topics.
Click here for general information about Goldenseal payroll software.