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W-2cs for Employees Who Do Not Update Their State Taxes

Hi Payroll Talk,

I have a question on how your companies handle post tax year changes as it pertains to state income taxable wages (Box 16). In the past, I have always had the employees work with the states when filing their taxes if they failed to notify the company that they have moved (or are having an incorrect state withheld). However, at my current company, it is open season for anyone that comes to payroll and states that they should have been in California for half of the year and Oregon for the other half (when they just were setup for California for the full year)....or some other variation thereof.

So how do you typically handle these situations? Do you issue W-2cs and calculate what the employees taxable wages should have been based upon changes they are giving you after the tax year, or do you tell them to work directly with the state?

Thank you!


  • David WarrenDavid Warren ✭✭✭✭

    At the risk of sounding like a smart a**, we try VERY hard to not find ourselves in such situations. Our timesheets includes a "worked at location" code, like OR-1. Past that we send quarterly emails to all employees (automated) saying this is where we showed you working the last quarter (hours/location) and if you cannot be bothered to tell us there is a problem NOW, then we cannot be bothered to fix YOUR problem at year end.

    Not your question, but we do something very similar with visa status. Employees seem to think payroll has telepathic abilities.

  • Thanks, David. The company I am with is using an antiquated/rudimentary time tracking and payroll software. We are currently in a Workday implementation that well help solve "some" of these issues, but as you indicated you will always have employees that come back after the fact. I'm just curious what other companies generic responses are. I believe most to be that if the employee did not complete the correct withholding certifications and/or notify the company of a discrepancy within the same year, then they must correct it with the states during their tax filings. Thanks again.

  • David WarrenDavid Warren ✭✭✭✭

    Yeah. The problem is that only 43 states have withholding, that people who travel work in more then one states, and states do not play well with each other. CA for example does not care where people live. NY thinks everyone should pay them tax, even if the employee never lived or worked there. Also other taxes such as sales or business taxes can be in play depending on total hours worked in state even if no one lives the state. I never like using something like a state income tax withholding form for something it was not intended for. I have worked for employer who had 45 state withholding even though we only had work sites in 7 states. Our CPA firm said we were paying more then one million dollars annually in unnecessary tax payments (not payroll) based on hiring people in non-worked states.

    The key is trying to figure out exactly what problem you need solving, then determining exactly what the correct solution is. I really like generating the quarterly memo to employees, saying "this is what we did last quarter. Whine now or forever hold your peace". And in my experience, HR N-E-V-E-R keeps track of visa matters. Or much else. Kind of like air traffic controllers. If the plane crashes, it is an "oh well, time to go home for dinner".

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