Two employees, same name: What do we do?
Question: We have two employees with the same first and last names. A problem arises because the time-keeping system, which relies on a username, rather than an employee ID number, interfaces with the HRIS system. Our IT department told us to just add a period to one of the employee’s names. Does adding a period affect W-2 reporting?
Answer: No, adding a period doesn’t impact W-2 reporting. The Social Security Administration will strip out the period prior to processing, so this employee’s name and Social Security number will still match the SSA’s and the IRS’ records.
Can we stop withholding for employees who have met their tax liability for the year?
Question: An employee is expecting a large year-end bonus. He has asked to be exempt from federal and state income tax withholding, because he says he has fulfilled his tax liability for the year. If he refiles his W-4 to claim an exemption from withholding, should we use the aggregate method to withhold taxes from his bonus? Should we request a letter from his CPA stating that he doesn’t have any remaining tax liability?
Answer: You should stick to the most basic W-4 rule: Honor employees’ W-4s, unless you know those forms aren’t valid. Since you have no way of knowing this employee’s tax situation, you should honor a refiled form. You won’t run into any trouble with the IRS, but the employee may, if he ends up being underwithheld for the year.
You don’t have to withhold federal income taxes on the bonus, unless the bonus boosts his total supplemental pay for the year over $1 million. If that’s the case, you must withhold a flat 39.6%, regardless of his W-4 form.
You should consult your state tax department’s website about what to do for state taxes.