Withholding taxes are part of the payroll process. They are one of the deductions made to the pay check of your employees aside from the usual FICA taxes and other state taxes. But what happens if you incorrectly compute the withholding tax of your employees?
Two things can happen. It’s either you under withheld or you over withheld the tax of your employees. All businesses are required to file the Form 941 quarterly to the IRS.
It is not hard to miscalculate employee withholding tax especially if you are not using payroll software. If you under withheld, you can catch up the missed withholding amounts in the months ahead by withholding additional from the employee’s check until the under-withholding has been corrected.
If taxes have been over withheld, you can make a correction in future pay periods by withholding less than the amount calculated on the tables or charts. You can let the withholding stand as is. Over-withheld income tax will correct itself when the employee files a tax return.
You need to ensure correct computation of your employees’ tax to avoid inconvenience and returning wages you owe to them or your employees owing money to you. This can cause additional workload to your payroll department.
Having a payroll software installed in your payroll department can help you compute for the correct amount of taxes and prevent miscomputing of withholding tax due from your employees. It will also lessen the work of your payroll officer.