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Under reported FICA

An employee's FICA did not get reported for partial year 2017. I did not discover this until 2/1/18. I am now correcting the 3rd and 4th quarter's 941's using 941X. I understand it is the employer's responsibility to pay both portions of FICA/Medicare. I also read that if we need to recover the employee's portion before the end of the calendar year. That did not happen. Now at this point how do I correct his W-2? FYI - I've already sent out W-2s and reported to IRS. Working with the W-2C, If I were to add the employee's portion to the taxable wages, then the due amount for FICA goes up.....!! At this point do we ask the employee to pay outside of payroll to pay his portion or can we withhold the extra tax in payroll? Any insight on this would be awesome!! Thank you in advance.



  • You can go back to the employee and collect the fica due. Your other option is to pay the tax on behalf of the employee. In which case you will need to do a gross up, as the tax paid on the employee's behalf is a taxable event. In either case the employee should receive a W2c.

  • So I can add the employee's portion as a payroll adjustment in 2018 to the employee's gross wages for FICA and Medicare, because it then becomes taxable and then at the end of the year, I can add that same amount to Federal and State wages treated like a fringe benefit?

  • No that was not what was said. Income tax withholding cannot be adjusted after the end of the end of the calendar year. FICA tax is deemed withheld in the calendar year the related wages were paid. Technically, this is not a wage over payment, but a misapplication of funds i.e. the employee got the money instead of the IRS. If you recover the funds from the employee at any point, everything is good.If you do not recover the funds, but instead pay the taxes for the employee, then you have an over payment -- In the year the wages were paid. In that case, you gross up the unwithheld Social Security and Medicare (FICA includes both) for FICA (Social Security and Medicare) taxes and correct and amend the W-2 and Forms 941 respectively for the year and quarters the errors occurred. Because the employee received the money in that year, income tax wages are adjusted for the employer paid taxes (even though paid in a later year) including the gross up - but income tax withholding does not change. Social Security and Medicare wages and taxes are adjusted to the correct amounts including the gross up. as the employer should have paid the taxes at the time the wages were paid,This is consistent with the rules regarding treatment of wage overpayments.

    The point is, the additional income created by the employer payment of the taxes was paid to the employee in the year the employer failed to withhold the tax. Nothing arising out of this transaction should affect subsequent year payroll.

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