USA Bookkeeper didn't set up health insur premium as pretax

[McMike]

Hi, a consulting client's bookkeeper who does the payroll did not set up the health insurance premium withholding as pre-tax. So, taxable income is overstated. And as a result, the affected employees presumably overpaid their income taxes, since the W2 showed an overstated income amount.

Apparently no one noticed. I am pretty mortified because this may have been going on for a number of years.

I need help thinking this through, I want to have my ducks in a row before I open this can of worms.

2019 is easy: fix it now and under-withhold for payrolls in December. Merry Christmas.

But the previous years....

Thanks

 

[kirby]

Ouch. I suggest limiting the amount of time and effort you put in to defining all aspects of this issue because once you discuss with the company they may, rightly or wrongly, terminate you. Given that, I think the most cost efficient path is to first read Instructions for 941X, but frankly that document's policies do not sound hopeful for this matter. Then call IRS and discuss matter in general terms without disclosing the client to see if there is a way to correct. Lastly, consider contacting local CPA firms and see if someone has direct actual experience with correcting such an issue. If you find someone, do not engage them just get their billing rates so you can provide to the Company. Next, have your atty read your agreement with the Company to determine if Company can take action against you and for how much and give you advice on how to inform Company. Then it's time to let Company mgmt know.
Good Luck.

 

[bklynboy]

Ouch. I suggest limiting the amount of time and effort you put in to defining all aspects of this issue because once you discuss with the company they may, rightly or wrongly, terminate you. Given that, I think the most cost efficient path is to first read Instructions for 941X, but frankly that document's policies do not sound hopeful for this matter. Then call IRS and discuss matter in general terms without disclosing the client to see if there is a way to correct. Lastly, consider contacting local CPA firms and see if someone has direct actual experience with correcting such an issue. If you find someone, do not engage them just get their billing rates so you can provide to the Company. Next, have your atty read your agreement with the Company to determine if Company can take action against you and for how much and give you advice on how to inform Company. Then it's time to let Company mgmt know.
Good Luck.

Why would OP be reprimanded for identifying an issue in past withholdings? I would think just the opposite that management would appreciate knowing this and this may open them open to fines and would like to rectify to make their employees whole. When I find issues (and believe me there have been a few), management is very receptive and understands its part of my job to employ my knowledge to ensure compliance with tax rules. My advice - this needs to be raised but be sure the facts are correct and there is an error. Also would help if you can explain how this can be remediated in the best interest of the firm.

 

[kirby]

Dictionary" "Mortified" - to feel ashamed or embarrassed" . This was OP's choice of words and I honored OP's meaning. Since OP writes that OP feels this way it is reasonable to assume that OP may possibly share some blame, unfortunately. Else, if OP is blameless I agree with you.

 

[McMike]

Aha. No, discovering this is one result of what I was hired to do. Albeit not among the outcomes we were hoping for. I am mortified for the long tenured accountant. It's going to be an unpleasant conversation with the owner and accountant. And a PITA, and costly, to fix.

So the answer is obviously consult an expert with the facts. But I was hoping to put a frame around it for the owner before we did so.

The good news is : income was over-reported, and the IRS got overpaid. The bad news is: it's the employees who did so.

 

[kirby]

I am happy to hear that you are not at fault here.