How to correct incorrect deductions after the Plan Year end

[Guest slrogers]

We have discovered that, due to an error on our part, we did not deduct the correct amount from an employee's paycheck. As a result, we have processed $600 of Health Care Reimbursement Claims but we only withheld $300 from the employee's salary. This was all for our PY that ended 12/31/2003.

We have asked the employee to pay us back but they are not cooperating. Do we have any recourse? Also, what are the possible consequences to us for not honoring the employees election of $600?

Is there any standard way of correcting this type of administrative error?

I realize the amount is small but it's the principle of the matter.

Any ideas would be appreciated.

Sheri

[papogi]

Harry Beker, Russ Weinheimer, and John Richards (all of the IRS's Associate Chief Counsel's Office) commented on this issue on a “non-binding” basis in March of 2003. This was at an annual conference of the ECFC in Arlington, VA as follows:

==> CORRECTING UNDER WITHHOLDINGS. If an employer discovers late in the year that it accidentally under withheld employee pre-tax salary reductions, the employer probably can withhold the amounts on a pre-tax basis in the subsequent year to correct the mistake.

With this said, I would withhold the amounts this year. Any pushback from the employee with this approach would stall at the IRS’ door if this is , indeed, their view.

[Guest slrogers]

Thank you for the information. I believe that we will try this approach.