Penalized for taxes paid, then re-classified


T

Tony Vincent

I was an employee of a large financial company. I properly filled out
my W-4 and was satisfied with the way payroll taxes had been withdrawn.
Sometime in the fall I have been laid off and furnished with some
severance pay (less taxes).

At the last working day of the year, the company transferred some of
the already withdrawn income taxes, in order to make up for
under-withdrawn Social Security taxes. I learned about it the hard way:
my tax preparer shown me his calculations on penalties I owed to both
US and my State. When I contacted the company, they studied all my
proofs and agreed with the reason I paid penalties.

However, in spite of them being behind in tax withdrawing, compared to
the IRS and our state Revenue Dept. directives, the decision made by
the head of Corporate Audit was not to compensate me for those
penalties and extra work done by my preparer. The reason given to me: I
am ultimately responsible for paying my income taxes.

The amount in question was within $400. If I were to litigate, I would
add the cost of my time to prepare all the materials for my former
employer – but I am not eager to do it. I have not petitioned IRS on
returning the penalties to me and charging my x-employer either. I am
wondering if there is another practical leverage, if any, in my case.

I understand that the total I owed in both types of the taxes would not
change. The issue is who is liable for penalties if W-4 was not
correctly followed.
 
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P

Paul Thomas, CPA

Tony Vincent said:
I was an employee of a large financial company. I properly filled out
my W-4 and was satisfied with the way payroll taxes had been withdrawn.
Sometime in the fall I have been laid off and furnished with some
severance pay (less taxes).

At the last working day of the year, the company transferred some of
the already withdrawn income taxes, in order to make up for
under-withdrawn Social Security taxes. I learned about it the hard way:

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



my tax preparer shown me his calculations on penalties I owed to both
US and my State. When I contacted the company, they studied all my
proofs and agreed with the reason I paid penalties.

However, in spite of them being behind in tax withdrawing, compared to
the IRS and our state Revenue Dept. directives, the decision made by
the head of Corporate Audit was not to compensate me for those
penalties and extra work done by my preparer. The reason given to me: I
am ultimately responsible for paying my income taxes.

The amount in question was within $400. If I were to litigate, I would
add the cost of my time to prepare all the materials for my former
employer â?" but I am not eager to do it. I have not petitioned IRS on
returning the penalties to me and charging my x-employer either. I am
wondering if there is another practical leverage, if any, in my case.

I understand that the total I owed in both types of the taxes would not
change. The issue is who is liable for penalties if W-4 was not
correctly followed.




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.
 
P

Phil Marti

Tony Vincent said:
I understand that the total I owed in both types of the taxes would not
change. The issue is who is liable for penalties if W-4 was not
correctly followed.
The employee.
 
L

Lighthope

Tony,
I understand that the total I owed in both types of the taxes would not
change. The issue is who is liable for penalties if W-4 was not
correctly followed.
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!

--== TIGERS' QUEST - www.tigersquest.com
--== THE DOCTOR WHO AUDIO DRAMAS - www.dwad.net
--== A CHRISTMAS SPECIAL - http://christmas.dwad.net
 
D

David L. Martel

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.
 
D

Doug

=2E
=2E
=A0 =A0You have a clear loss of about $400. Sounds like a Small Claims cas= e to
me so go to the court house and see if it qualifies for small claims in yo= ur
locale. Also find out if expert witness fees are compensable since you'll
need your accountant.

The question is, Can you do it with Zen lightness! If so, then suing
your former company, especially in a little dinky small claims court,
might be great fun. And a source of many highly interesting stories.
If not, then maybe it's the type of thing you might want to take a
deep breath about, and then let go. As I see it, either decision can
be a
right decision.

And the reason they give, that you are "ultimately responsible . . ."
Oh, that's just rich! You turned in an
accurate W-4. Can you imagine, if you had then attempted to micro-
manage and had asked them a bunch of follow-up questions in order to
make sure--to make
absolutely sure!--they were doing it right, they would have considered
you to be a first-class pest. At best, at best, they would have
considered
you to be like Lt. Columbo (Peter Falk), but more probably, a first-
class pest.

"You are ultimately responsible." The same thing is said to high
school students, or to customers/clients in any bureaucracy, right?
An it has some truth to it, considerable truth to it, but it is also a
refusal to engage, and that's what's so very vexing about it.

-Doug
 
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T

Timothy

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

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.
 
T

Tony Vincent

I'm unclear why you think this happened. Social Security and Medicare are
pretty straight forward to compute.
I am baffled too... tax withholding is essentially a prepayment plan.
... 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, ...[/QUOTE]

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.
 
T

Tony Vincent

=2E
=2E


The question is, Can you do it with Zen lightness! If so, then suing
your former company, especially in a little dinky small claims court,
might be great fun. And a source of many highly interesting stories.
If not, then maybe it's the type of thing you might want to take a
deep breath about, and then let go. As I see it, either decision can
be a
right decision.
...

"You are ultimately responsible." The same thing is said to high
school students, or to customers/clients in any bureaucracy, right?
An it has some truth to it, considerable truth to it, but it is also a
refusal to engage, and that's what's so very vexing about it.

-Doug
That's why I'd rather "sell" this case to IRS i.e. petition them to
relieve me from the fines, giving the reason. But I am afraid they
don't have the form specifically for my case, and navigating their
hierarchy searching for the right counterpart is as laborious as suing
in Small Court (where expert witness fee is not collectable).
 
P

Paul Thomas

Tony Vincent said:
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.



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.
 
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B

Bill Brown

That's why I'd rather "sell" this case to IRS i.e. petition them to
relieve me from the fines, giving the reason. But I am afraid they
don't have the form specifically for my case, and navigating their
hierarchy searching for the right counterpart is as laborious as suing
in Small Court (where expert witness fee is not collectable).
There is no form for requesting abatement of a penalty. You write a
letter explaining your request.
 
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