Handling Under-withheld Taxes

Here is one method for handling the situation where taxes (Social Security, Medicare, Withholding, etc.) have been under-withheld for a period. In order to keep the reports accurate, the solution is usually applied in the same Payroll Year where the tax was under-withheld, but within a different period (month, quarter, etc.)

  1. Determine the amount that was under-withheld
  2. Create a Deduction Category, assigning it to the employee(s), verifying there are no Exemptions; its name could be Employee Loan
  3. Process a payroll check for the employee
    1. Indicate the appropriate date
    2. In Select & Edit Paychecks, clear all lines
    3. Deduct the amount that was under-withheld on its line
    4. Indicate that amount, as a positive value, on the (newly-created) Deduction line
    5. The resultant check will be a net $0
    6. Record the check
  4. In the next period (or the next paycheck), deduct the loan from the employee, using a negative value in the (newly-created) Deduction

As a result of using this procedure, the tax liabilities and reports will reflect accurate values for the appropriate periods.