Payroll on Point: Employee Inquiries on Withholding During Tax Filing Season

By Debbie Tam

Checkpoint’s Payroll on Point series explores common payroll scenarios and offers practical guidance.

Question: Now that the 2023 tax filing season is in full swing, I am getting numerous inquiries from employees who are complaining that we “underwithheld” federal income tax from their paychecks in 2023 and now they owe taxes with their annual return. We withheld based on their Form W-4. How can I best explain to an employee how withholding is calculated?

Answer: Like Groundhog Day, these types of employee inquiries pop up every year. In some cases, employees may even be angry and assume a payroll error must have occurred. Verify that withholding on the employee’s wages is based on the federal Form W-4, Employee’s Withholding Certificate on file. If no error has occurred, explain how withholding occurs while not providing personal income tax advice. A sample explanation is below:

• Dear Employee,

  In response to your recent inquiry regarding withholding on your wages, withholding on your wages for the 2023 tax year is based on Form W-4, Employee’s Withholding Certificate, on file in effect for 2023. Your Form W-4 remains in effect unless you submit a new Form W-4.

  In general, withholding is based on the amount of wages earned in each payroll period, the payroll frequency, and the information as provided on Form W-4. Based on the W-4 information you provided, withholding was calculated accurately.

• For the 2024 tax year, it is prudent to review the withholding information available on each pay stub and make any necessary adjustments by submitting a new Form W-4. It is advisable to complete the attached worksheets as appropriate to determine your withholding needs. Also, the IRS offers a Tax Withholding Estimator that can estimate your federal income tax withholding and help you determine an estimated withholding amount that works for you. Finally, you should reach out to your tax professional if you have any concerns.
• For further information regarding how withholding is determined based on Form W-4, see IRS Publication 505, Tax Withholding and Estimated Tax and IRS Publication 15-T, Federal Income Tax Withholding Methods.
• Sincerely,

For further information regarding Form W-4, see Payroll Guide ¶4010.