Learn how to fix a tax underpayment,
Do you need to resolve a tax underpayment? We'll explain what causes a tax underpayment, and the different ways to resolve it.
Common causes that trigger an underpayment
Was there a retroactive increase in your state unemployment insurance (SUI) rate?
The most common case is a retroactive increase in your state unemployment insurance (SUI) rate. Normally, the SUI tax agency notifies you about a rate change during the previous year. You'd then update the rate in your payroll account with an effective date of January 1 of the new year.
However, you may have:
- Misplaced the notice.
- Overlooked the update of your payroll account.
- Realized this later, and updated the rate at that time. However, you already paid your SUI taxes for one or more of the previous quarters. You'd now have SUI underpayments for those quarters.
An SUI Example:
- Suppose your SUI rate was 3.4% in 2018, but increased to 4.2% in 2019.
- You had SUI-taxable wages of $10,000 in the 1st quarter of 2019. We prompted you to make a SUI payment for $340 in April.
- In May, you realized you had forgotten to update the SUI rate in your payroll account.
- Then you entered the new rate of 4.2%, with an effective date of 1/1/2019. Our system then showed that you had an additional SUI liability of $80 in the 1st quarter.
Less common causes are rate changes in other tax types, such as state disability insurance (SUI) and workers' compensation (WC).
Did you enter back-dated paychecks for a period in which you already paid the taxes?
You may have entered paychecks back-dated to a period for which you already made the tax payments. In this case, the new paychecks would increase your tax liabilities for the period, and additional tax payments would be due.
For example: Suppose that in May you entered three paychecks for an employee back-dated to March. You had already made your tax payments for the 1st quarter payrolls. The new checks would increase your 1st quarter tax liabilities, and our system would prompt you to make the additional payments due.
Did you received a notice for taxes due?
On rare occasions you may receive a notice for additional taxes due from the IRS or state agency. This can happen even though you already made the tax payment for that period.
In most cases, you should contact Payroll Support for assistance:
- We'll ask you to send the notice to us for review.
- We'll usually be able to explain how the notice originated, and the steps you should take to resolve it.
For example: If you received an IRS notice in November for additional 941 taxes due for the 3rd quarter. Yet, you had already made electronic payments for the 3rd quarter taxes through our system.
- One possible cause is that you had a deficient payment for a previous period, such as the 1st or 2nd quarter.
- For instance, you may have entered a manual 941 payment that wasn't actually remitted to the IRS or paid through EFTPS.
- The IRS would then apply a portion of the tax payments you made for the 3rd quarter payrolls to the earlier period, which would then trigger the deficiency notice for the 3rd quarter.
Did we perform a correction to your payroll?
If you requested us to perform a correction to your payroll records, those corrections may increase your tax liabilities for one or more periods. The processor who performed the correction will send you a confirmation email which includes details of the additional payments that are due.
Resolving an underpayment
Please contact Payroll Support for assistance with resolving underpayments for State disability insurance (SDI), Workers' compensation (WC), and local taxes.
How do I resolve a federal underpayment?
If your payroll account is active for federal electronic services, you can generally make an e-payment for the additional taxes that are due (940, 941, or 944).
If your payroll account is active for federal e-services, but you remit the additional payment outside of our system (for example, through EFTPS), you have two options for recording it:
- As a manual payment. On the Pay Taxes page, click Create Payment (as you would normally do for an e-payment). On the next page, deselect the Pay Electronically checkbox, and click Approve.
- As an outside payment. See article Enter prior tax payments for instructions.
If your payroll account is not active for federal e-services, you also have the options of entering the additional payment as a manual payment or an outside payment.
How do I submit a State Income Tax (SIT) underpayment?
If your account is active for state electronic services, you may be able to make an e-payment for the additional state income tax (SIT) amount due through our system. However, this isn't allowed for several states.
The best way to find out is to attempt to create the payment from the Pay Taxes page. If you can approve it with the Pay Electronically checkbox marked, then it will go through as an e-payment. Otherwise, it will be a manual payment, and you should remit the amount due directly to the tax agency.
If your account is not active for state e-services, create and approve the manual payment. Then remit the amount due to the tax agency.
How do I submit a State Unemployment Insurance (SUI) underpayment
If your account is active for state electronic services, you generally can't make an e-payment for the additional state unemployment insurance (SUI) taxes through our system. (An exception is California, which does allow multiple SUI e-payments.) In other states, you should remit the additional payment directly to the SUI tax agency (either by email, or on the agency s website). Record the payment as an outside payment in your payroll account.
The same rules apply if your account isn't active for state e-services. Remit the additional payment directly to the SUI tax agency. Record it as an outside payment in your payroll account. (For California, you can make multiple manual SUI payments.)
Things to know:
- It s essential that you enter payments for all SUI taxes owed. If your SUI taxes are out of balance, you won't be able to pay your FUTA taxes or file federal Form 940 at the end of the year.
- If you underpaid your SUI taxes, some states require an amended form to be filed as well as the additional payment.
- Please contact your SUI tax agency to determine if you need to file an amendment. (Online Payroll doesn't support amended forms.)