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Message
Payroll Screw-up...need Advice
Posted on 7/1/14 at 10:37 am
Posted on 7/1/14 at 10:37 am
I'm hoping you guys can help me make heads or tails with a payroll screw-up that my company made. I was awarded a trip (Presidents' Club) to Cancun earlier this year and my company is adding the value of our trip to our W2 so we need to pay taxes on it. On the most recent paycheck, they screwed up and rather than withholding the amounts of Federal/State taxes, they paid us the additional taxes. So, the money we received was actually supposed to go to pay for the taxes. Now, below is the wording they used. Can someone that is much smarter than me with taxes help me decipher which is going to be the better situation at the end of the year. Not sure if you need more information, if you do, please ask and I will answer. TIA for your help and I owe you a beer!
quote:
It was brought to our attention that the payroll system inadvertently overpaid you this week when processing the taxable non cash award that was associated with the recent “In it to win it” trip.
The goal was to gross up the value of the trip so that the company would cover taxes. The taxes were calculated correctly. However, instead of withholding the amounts associated with your Federal and States taxes, the system actually paid you the additional taxes associated with the trip. This means that the overpayment you received was actually money that was supposed to go towards your Federal and State tax withholding.
This issue can be addressed in one of two ways:
1.) You have the option to keep the funds paid to you. Please keep in mind when you file your 2014 return that these funds should be used to offset any additional amount you may or may not owe.
2.) You can have the taxes that were paid to you in error deducted from your pay over the next 1-6 pay periods. Under this option you will see an increase in taxes withheld and a decrease in net pay over a time period that best works for you.
6
Posted on 7/1/14 at 10:39 am to CHiPs25
Just take option 1 and stick the money in savings if you think this will result in you having a tax liability at YE.
Posted on 7/1/14 at 10:41 am to CHiPs25
There are going to be a lot of people that tell you to keep the cash and make interest, but the smart move is to have it all taken out of your next check.
Posted on 7/1/14 at 10:49 am to CHiPs25
If you think you'll meet the safe harbor provisions I see no reason to pay it back.
quote:
If your 2013 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2014 or 110% of the tax shown on your 2013 return to avoid an estimated tax penalty.
Posted on 7/1/14 at 11:19 am to CHiPs25
In the end, you're going to come out pretty much even either way. Were it me, I'd take option 2 just so there are no surprises on next year's tax return.
Posted on 7/1/14 at 1:51 pm to CHiPs25
The company is trying to avoid you having to "pay" taxes on the trip, by basically providing additional money to you to cover the tax implications of the trip. This way, you don't have to pay the taxes out of your own pocket. That is what is meant when they said "the goal was to gross up..."
Do you normally get a refund, or do you normally owe taxes?
If you don't send the money in, your refund will be less, or, you may owe more than normal. If you end up owing more than $1,000, you *might* owe penalties and interest. Depends on your tax situation.
I would go with option 3. What is option 3? Look at your last paystub, figure out what the additional amount is that was paid to you, and sent it in as an estimated tax payment to both the IRS and whatever state you are in.
I say this because I would not necessairly trust the company to get it right with option 2, and option 1 *might* cause a headache down the road.
Just don't forget you made the estimated tax payment when you prep the tax returns next year.
Do you normally get a refund, or do you normally owe taxes?
If you don't send the money in, your refund will be less, or, you may owe more than normal. If you end up owing more than $1,000, you *might* owe penalties and interest. Depends on your tax situation.
I would go with option 3. What is option 3? Look at your last paystub, figure out what the additional amount is that was paid to you, and sent it in as an estimated tax payment to both the IRS and whatever state you are in.
I say this because I would not necessairly trust the company to get it right with option 2, and option 1 *might* cause a headache down the road.
Just don't forget you made the estimated tax payment when you prep the tax returns next year.
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