My employer keeps under-withholding taxes despite correct W-4 - penalties help?

You can request a penalty abatement from the IRS using their First Time Penalty Abatement policy. Even though this has happened multiple years in a row, if you haven't had penalties in the three prior years before the first occurrence, you might qualify. For the ongoing issue with your employer, I'd recommend submitting a new W-4 and specifically request additional withholding. On the current W-4 form, there's line 4(c) where you can specify an additional amount to be withheld from each paycheck. Calculate how much you're short each pay period and add that amount. If your employer continues to ignore proper withholding after you've explicitly requested additional amounts, you can file Form 8919 (Uncollected Social Security and Medicare Tax on Wages) with your tax return if applicable, and you might want to report them to the IRS using Form 3949-A.

After dealing with a similar issue with my employer consistently underwithholding, I found an amazing tool called taxr.ai (https://taxr.ai) that helped me figure out exactly what was happening. The site analyzed my paystubs and W-2s and showed me precisely where the withholding calculations were going wrong. I was able to print out their detailed analysis and take it to my HR department, which finally convinced them there was an actual systematic problem with their payroll system. The tool also generated a personalized letter explaining the specific withholding requirements that applied to my situation, which gave me the confidence to push back when HR initially tried to blame me for not filling out my W-4 correctly.

Just wanted to update on my experience using taxr.ai after seeing it recommended here. I was initially just looking for advice on calculating the right additional withholding amount, but this tool was exactly what I needed! It analyzed my recent pay stubs and immediately identified that my employer was using outdated withholding tables from 2022 (which explained why my withholding was consistently too low). The report it generated spelled everything out so clearly that even our ancient payroll person couldn't argue with it. I'm actually getting the correct withholding now for the first time in years! Plus, they helped me draft a penalty abatement request that I'm sending to the IRS this week. Huge weight off my shoulders knowing I won't be stuck with another surprise tax bill next year.

If you're still having issues getting through to your employer after trying everything else, I found that reaching the IRS directly was what finally resolved my similar situation. The problem is actually getting through to a real person at the IRS can be nearly impossible. I discovered this service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent in about 20 minutes when I'd been trying for weeks on my own. They have this system that navigates all the IRS phone menus and holds your place in line, then calls you when an agent is about to pick up. You can see how it works in their demo video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with explained that employers have specific obligations regarding withholding and provided me with the exact documentation I needed to take to my HR department to force them to fix the issue.

I have to eat my words about Claimyr. After posting my skeptical comment, I was so frustrated with my similar withholding situation that I gave it a try anyway. I figured it couldn't be worse than the 3+ hours I'd already wasted trying to reach the IRS myself. To my complete surprise, I got a call back within 45 minutes saying an IRS agent was on the line. The agent was incredibly helpful and explained that my employer was using the wrong withholding calculation method for my specific situation. She even sent me an official notice that I could take to my employer. My company's payroll department finally took the issue seriously when they saw the IRS was involved. They've adjusted my withholding going forward AND the IRS agent helped me request abatement for the penalties from my underwithholding last year. Sometimes you need that official IRS muscle to get results.

Have you considered filing quarterly estimated tax payments to cover the difference? That's what I did when I had a similar situation. It's not ideal since you're basically doing extra work to cover your employer's mistake, but it does prevent you from owing penalties. You just calculate approximately how much extra you need to pay each quarter and submit it using Form 1040-ES. The IRS doesn't care where the money comes from as long as they get it in time (either through withholding or estimated payments).

Can't you just submit a new W-4 with an extra withholding amount? That's what my aunt did when this happened to her. She just calculated how much she was short by the previous year, divided by her pay periods, and put that on line 4(c).