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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.

[Deleted User]


  • 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.

    [Deleted User]cindel
  • 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.

  • what about one of the employee's 2017 check needs to be voided? How do I fill out the W-2 and 941X form?
    this is my first time doing it.

  • what about one of the employee's 2017 check needs to be voided? How do I fill out the W-2C and 941X form?
    this is my first time doing it.

  • acl1118
    acl1118 ✭✭✭

    The 2017 checks will not be voided. You will issue a W2c with the correct tax liability based on the employee's wages. You will then pay any additional tax due when you prepare a Form 941x. At not time should any of this be processed through your 2018 payroll.

  • rrupert
    rrupert ✭✭✭

    I think Mimi needed to start a new question all her own since she is not the OP and I am not seeing where she is talking about the same subject.

  • Mimi12 "what about one of the employee's 2017 check needs to be voided? How do I fill out the W-2C and 941X form?"
    Depends upon why the check is being voided. If it is being voided because it was never cashed and is being replaced, there is no effect on either the W-2 or Form 941 for 2017 and the reissue of the check (net pay) has no effect on 2018 payroll. Same thing if it is being voided and the funds turned over to the state under the escheat (unclaimed property) rules. The income remains taxable to the employee in the year it was constructively received by the employee and the taxes withheld are still deemed paid to the government on behalf of the employee during that year.

    However, if it is being voided because it represented an over-payment, then the question of constructive receipt comes into play - generally the employee has constructive receipt if the funds are available or set aside for the employee without any restrictions as to the employee's rights to the funds. Then the subsequent year recovery of a wage over-payment rules would kick in - Income tax wages and taxes would not be corrected, but FICA wages and taxes would be adjusted using Form W-2c and Form 941-X. If the taxes had been deposited, then the employee would have to repay the withheld tax (including income tax) to the employer and the employer refund the amount of FICA taxes that are to be recovered from the IRS to the employee after obtaining the appropriate certifications and authorizations from the employee. The employer would then recover the FICA taxes from the IRS using Form 941-X and issue a W-2c to correct the SSA records. The employee recovers the excess income tax on the employee's Form 1040 for the year the over-payment occurred.

    For repayments made in 2018 that are greater than $3,000, the employee should take a tax credit based on the amount of income tax attributable to the over-payment in the year the wages were over-paid. It is not year clear to me how the employee will handle repayments of $3,000 or less because those used to have to be recovered as a miscellaneous itemized deduction. I have to do some more research to see if that was addressed in the TCJA of 2017.