Discovered Employer Didn't Withhold Enough Federal Taxes - What Can We Do?

Unfortunately, this happens more often than you'd think. Even with a W-4 filled out correctly, employers can sometimes apply the wrong withholding rate. The problem is that ultimately, the tax liability falls on you as the taxpayer, not the employer. First thing you should do is double-check that his W-4 is actually set up correctly. The W-4 form was completely redesigned in 2020, so if he hasn't updated it since then, that could be part of the issue. The new form doesn't use "exemptions" anymore - it uses a different system. Second, calculate what his actual withholding should have been. For $38k income, federal withholding should typically be around 10-12% depending on your filing status and other factors, not 1.5-2%. Third, approach his employer's payroll department with specific documentation. Ask them to explain in writing why the withholding percentage is so low compared to standard rates. Request a meeting with a payroll manager, not just a representative. Fourth, file Form 843 (Claim for Refund and Request for Abatement) if you believe the employer made a clear error despite correct information provided by your husband.

I went through something similar last year with my wife's payroll. What saved us was using taxr.ai https://taxr.ai to analyze our pay stubs and tax documents. It caught the withholding error immediately and even generated a detailed letter we could take to HR explaining exactly what was wrong. The site walks you through uploading paystubs and W-4 documents, then compares what's being withheld against what should be withheld based on current tax laws. We found out her employer was using an outdated withholding table from 2018! The report helped us prove it wasn't our mistake. The best part was that it showed us exactly what forms to file with the IRS to minimize penalties since we could prove the employer made the error despite having correct information from us.

Just wanted to follow up - I ended up using taxr.ai after seeing it mentioned here and I'm really glad I did. The system immediately identified that my brother's employer was using the wrong filing status in their payroll system (they had him as "married" when he should have been "married but withhold at higher single rate" since his wife also works). The report generated showed exactly where the calculation went wrong and included citations to the relevant IRS publications. When we brought this to his company's payroll department, they actually acknowledged the error! We're now using the documentation to request penalty abatement from the IRS. The analysis also showed that this had been happening for two years, not just the current tax year, so we're looking into filing amended returns. Definitely worth checking out if you're dealing with withholding issues.

After dealing with a similar withholding nightmare last year, I spent WEEKS trying to get through to the IRS for guidance. Always busy signals or 2+ hour wait times just to get disconnected. Then someone recommended Claimyr https://claimyr.com and showed me their demo video https://youtu.be/_kiP6q8DX5c. Basically, they get you connected to an actual IRS agent without the wait. I was skeptical but desperate after my 8th failed attempt to reach someone. Within 20 minutes of using their service, I was talking to an actual IRS representative who walked me through exactly what forms I needed to address my employer's withholding error. The IRS agent confirmed that while the employer made the mistake, we were still liable for the taxes but could request abatement of penalties by showing the employer error. Would have never known this without actually speaking to someone at the IRS.

I have to eat crow here. After being skeptical about Claimyr, I was facing a huge tax bill similar to the OP's situation and couldn't get through to the IRS after 14 attempts over 3 days. Decided I had nothing to lose and tried the service. Within 45 minutes I was actually speaking with an IRS representative who explained that I could file Form 843 to request penalty abatement due to my employer's failure to withhold correctly. They also sent me to a specific page on the IRS website with instructions for dealing with incorrect withholding by employers. The agent told me something crucial - keep copies of all communications with the employer about the withholding issue as evidence for the abatement request. Also learned that I could adjust my current year withholding to spread out paying the previous year's liability, which I didn't know was an option. Sometimes you have to admit when you're wrong, and I was definitely wrong about this service. Saved me days of frustration.

One thing nobody's mentioned - check if your husband received any bonuses or had any unusual pay periods during the year. My company once messed up and applied the wrong withholding rate to a bonus check (they used the regular withholding percentage instead of the supplemental wage rate of 22%), and it resulted in significant underwithholding. Also, if he changed jobs during the year, sometimes the new employer doesn't account for income already earned at the previous job when calculating withholding, which can lead to underwithholding as well.

Just curious - did either of you have any major tax changes from the previous year? Like buying a house, having a child, changing filing status, etc.? I got hit with a big tax bill the year after we bought our house because I didn't adjust my withholding to account for no longer taking the standard deduction.

I'm a tax professional and I see this scenario regularly - unfortunately, you're dealing with a perfect storm of issues. The 1.5-2% withholding rate is drastically wrong for someone earning $38k, even if filing married jointly. Here's what likely happened: Your husband's employer is probably still using his old W-4 from before 2020, and their payroll system may not be properly handling the transition to the new withholding calculations. Many employers defaulted to minimal withholding when they couldn't properly interpret old forms. For immediate action: 1) Have your husband complete a NEW 2023 W-4 immediately and submit it to payroll with a written request to confirm the change, 2) Request in writing that payroll explain their current withholding calculation and provide the tax tables they're using, 3) Document everything for your penalty abatement request. The $4,100 liability sounds about right unfortunately - with your combined $100k income filing jointly, his severe underwithholding would create exactly this kind of shortfall. The good news is you have a strong case for penalty relief since this appears to be employer error despite correct employee information. Also consider making estimated tax payments for 2024 while you get his withholding fixed to avoid repeating this situation.