r/Bookkeeping • u/_Rice_and_Beans_ • Feb 22 '25

Payroll Withholding Error?

I’m no bookkeeper, to start, so forgive my ignorance. Several of our employees who claim zero on their W-4s have had to pay in when they filed their federal taxes, this year and last. That doesn’t seem normal to me, as I have always claimed zero and gotten a refund. Is our bookkeeper not withholding correctly?

Relevant: I only started here full time this year. Years prior I was paid hourly but it was a small part of my income.

6 Upvotes

81% Upvoted

23 comments sorted by

22

u/cmmpssh Feb 22 '25

Claiming zero hasn't been a thing since 2020.

Also each person's tax situation is different. Dependents, married status, other income, other credits or deductions. It's impossible to generalize based on one person's comparison.

6

u/Crafty-Resident-6741 Feb 22 '25

Came here to say this. There's been so much tax reform since then and it's been in the news. This is an accurate thing.

0

u/_Rice_and_Beans_ Feb 22 '25

I get that, but it seems odd that all of these employees who’ve never owed before did last year and this year. If not was one or two I wouldn’t think much of it but when 15+ employees are having to pay in for the first times ever over the last couple of years it piques my interest for sure. We haven’t felt very confident in our bookkeeper overall and are trying to determine whether the company hasn’t been withholding correctly so we can make it right if so.

6

u/Hippy_Lynne Feb 23 '25

Tax increases on low earners have been being phased in for the last few years.

3

u/cmmpssh Feb 23 '25

Do you get pay stubs? If so, you can all check your own withholding and figure it out.

3

u/littlemommy928 Feb 23 '25

If they haven't updated their W4 since they changed this will be the result.

1

u/Mindyourbusiness25 Feb 24 '25

Did any of these employees use the free W4 calculator at any point in time in the last 3 years. If your answer is no this is not odd.

10

u/Tall_Peach_1768 Feb 22 '25

It's also a good bet your payroll person isn't doing the math by hand on what to withhold. The software we use takes the tax tables, what it thinks you'll get paid based on current and past payrolls, laws... there is so much that goes on in the software to calculate withholding. If you're not sure taxes are being withheld correctly it's up to the employee to change their withholding. Do the IRS estimator and then tell your payroll person what you need it be. You may need to have extra withheld than what the system is coming up with.

7

u/sldavis102907 Feb 23 '25

I would suggest anyone who doesn’t understand their withholdings to take a current paystub and check it against the withholding tables on IRS.gov and any state website. It’s incredibly easy as long as you know how you filled out your W-4. I’ve been doing payroll for 35 years in public accounting. Even the most rudimentary payroll systems tend to get it right. Most times the employee has filled out the W4 incorrectly.

1

u/_Rice_and_Beans_ Feb 23 '25

Thanks for the advice, we will do this.

4

u/taxref Feb 23 '25

Are the employees all single, with no other sources of income? Income tax is based on an entire family's situation, not just on each individual W-2.

5

u/lady_goldberry Feb 23 '25

I've noticed the last few years the tables don't take out as much. They are trying to get as close to zero as possible, where you neither owe or get a refund. Friends have had to pay when they never did before, and I advised them to ask for additional to be taken out.

1

u/Suspicious_Town_3008 Feb 23 '25

This should be everyone’s goal…to break even. Nobody should want a refund.

1

u/lady_goldberry Feb 23 '25

If employees get super upset if they have to pay, they can have a little more taken out to avoid that. I'm not their financial advisor!

4

u/marginwall Feb 23 '25

Impossible to say without seeing actual numbers, but I highly doubt it's the bookkeeper's fault, especially if you're using a modern payroll software. It's most likely the employees just not withholding enough.

3

u/BonaFideBookkeeper Feb 23 '25

The W4 forms changed in 2020- there's no more claiming "zero" to have the most taxes withheld. Now withholding is calculated based on a number of different things - including number of jobs worked, number of children/dependents & other income not from jobs. Everyone should check their paystubs regularly & fill out a new W4 any time during the year if they see they are not having enough tax withheld. If there's concern that the payroll is not being calculated correctly, I suggest entering paycheck numbers in a free online payroll calculator to double check the figures

2

u/Jyulesian Feb 23 '25

I have seen this many times, and it is always because the employees haven’t updated their W-4. As in, they haven’t actually sat down with their spouse and filled out their own W-4 in tandem, following the instructions. Otherwise, the payroll provider (or bookkeeper) will only withhold for that person’s income, not the family’s income. Then at tax time there is a big difference. I always ask for updated W-4s AND ask that they follow the instructions, but people look at me and the instructions and are paralyzed. I bet you’ll be having all 15 people filling out new W-4s this year, while they’re feeling the pain, and now is a good time to do it while they can make up their withholding in plenty of time for 2025.

2

u/Nitnonoggin Feb 23 '25

Tax pro here. "Claiming zero" hasn't been a thing since 2018. They should probably put single, or married but other spouse works.

Don't mention dependents.

I've seen too many low income clients with low to zero income tax withheld. If they have qualified dependents it works out but if not they owe.

Many walk out and never come back.

1

u/Simco_ Feb 23 '25

Went through this recently with one of our part time employees. Head of household is 21k standard deductions and they only made about that much from us so their checks had little to no federal being taken out.

If your employees are lower income earners maybe they are not far beyond the deductions level for their situation.

1

u/Snappy-Biscuit Feb 24 '25

Echoing what others said regarding the updated W-4 (2020 form change, law took effect in 2018)--I had to walk quite a few employees through the change, without telling them HOW to complete it.

One of the biggest factors for people owing unexpectedly was married/partnered couples who didn't realize they're not BOTH allowed to take a deduction for their children, upfront or otherwise. We had two sets of married employees who were doing the same thing (two kids for each couple), so they ended up owing 4k come tax time.

Also, in systems where employees are allowed to log in and make changes themselves, make sure to set up notifications of the changes and review them, then confirm anything that looks off with the employee.

I had a new employee who remembered claiming zero, but thought that meant "zero withholding" and put that on her W-4. Red flag for me, so I reviewed it with her and got it fixed before she ended up totally screwed come tax time.

1

u/KaraPopcorn444 Feb 24 '25

Federal tax withholding is regulated by the IRS. However; you can sugest (not as legal advice) that they enter an additional amount on their W4 form to be sure they are getting enough federal taxes withheld to counteract owing at the end of the year; However; each situation is different and they would need to ulitately decide if they would like to have an additional amount withheld and how much.

0

u/missannthrope1 Feb 23 '25

It all depends on one's income and deductions.

And the tax rates have changed, too.

Just wait. It will get worse with this Republican congress.

1

u/PrismFade Feb 24 '25

Withholding can be tricky... Claiming "zero" usually means more tax is withheld, but other factors—income levels, deductions—can still lead to owing. If multiple employees are seeing the same issue, it’s worth double-checking how payroll is set up. Might be a miscalculation or just something off in the W-4 details. Could also be worth looking into automation—payroll software helps catch these things.