9. Reporting Adjustments on Form 943(p20)

There are two types of adjustments: current year adjustments and prior year adjustments to correct errors. See the Instructions for Form 943 and the Instructions for Form 943-X for more information on how to report these adjustments.

In certain cases, amounts reported as social security and Medicare taxes on lines 3 and 5 of Form 943 must be adjusted to arrive at your correct tax liability. The most common situation involves differences in cents totals due to rounding. Other situations when current year adjustments may be necessary include third-party sick pay, group-term life insurance for former employees, and the uncollected employee share of social security and Medicare taxes on tips. See Publication 15 (Circular E) for more information on these adjustments.

If you withhold an incorrect amount of federal income tax from an employee, you may adjust the amount withheld in later pay periods during the same year to compensate for the error.

Generally, you can correct social security and Medicare errors on prior year Forms 943 by making an adjustment on your Form 943 for the year during which the error was discovered. The adjustment increases or decreases your tax liability for the year in which it is reported (the year the error was discovered) and is interest free. The net adjustments reported on Form 943 may include any number of corrections for one or more previous years, including both overpayments and underpayments.

You are required to provide background information and certifications supporting prior year adjustments. File with Form 943 a Form 941c, Supporting Statement To Correct Information, or attach a statement that shows the following:

• What the error was,
• The year in which each error was made and the amount of each error,
• The date on which you found each error,
• That you repaid or reimbursed the employee tax if the entry corrects an overcollection, and
• If the entry corrects social security and Medicare taxes overcollected in an earlier year, that you received from the employee a written statement that he or she will not claim a refund or credit for the amount.

The IRS will not be able to process your adjustments on Form 943 without this supporting information. See the Instructions for Form 941c for more information.

You cannot adjust the amount reported as federal income tax withheld for a prior year return, even if you withheld the wrong amount. However, you may adjust prior year federal income tax withholding to correct an administrative error. An administrative error occurs if the amount you entered on Form 943 is not the amount that you actually withheld. Examples include mathematical or transposition errors. In these cases, you should adjust the return to show the amount actually withheld.

The administrative error adjustment corrects only the amount reported on Form 943 to agree with the actual amount withheld from wages in that year.

You may also need to correct Forms W-2 for the prior year (if they do not show the actual withholding) by filing Form W-2c, Corrected Wage and Tax Statement, and Form W-3c, Transmittal of Corrected Wage and Tax Statements. Forms W-2c may be created and submitted to SSA over the Internet. For more information, visit Social Security's Employer Reporting Instructions and Information webpage at www.socialsecurity.gov/employer.

Correct prior year social security and Medicare tax errors by making an adjustment on line 8 of Form 943 for the year during which the error was discovered.

If you withheld no tax or less than the correct amount, you may correct the mistake by withholding the tax from a later payment to the same employee.

If you withheld employee tax when no tax is due or if you withheld more than the correct amount, you must repay or reimburse the employee.

If you discover an error on a prior year return resulting in a tax overpayment, you may file Form 843, Claim for Refund and Request for Abatement, for a refund. This form also can be used to request an abatement of an overassessment of employment taxes, interest, and/or penalties. You must file Form 941c, or an equivalent statement, with 
Form 843. See the separate Instructions for Form 843.

If you withheld no federal income, social security, or Medicare taxes or less than the correct amount from an employee's wages, you can make it up from future pay to that employee. But you are the one who owes the underpayment. Reimbursement is a matter for settlement between you and the employee. Underwithheld federal income tax must be recovered from the employee on or before the last day of the calendar year.

If you withheld more than the correct amount of federal income, social security, or Medicare taxes from wages paid, give the employee any excess. The excess federal income tax withholding must be reimbursed to the employee before the end of the calendar year. Keep in your records the employee's written receipt showing the date and amount of the repayment. If you do not have a receipt, you must report and pay each excess amount when you file Form 943 for the year in which you withheld too much tax.

When adjustments are made to correct social security and Medicare taxes because of a change in the wage totals reported for a previous year, you also may need to file Forms W-2c and Form W-3c. Forms W-2c may be created and submitted to SSA over the Internet. For more information, visit Social Security's Employer Reporting Instructions and Information webpage at www.socialsecurity.gov/employer.

Under the new procedure for making adjustments, if you discover an error on a previously filed Form 943 after December 31, 2008, make the correction using Form 943-X. (Do not use Form 941c.) File a separate Form 943-X for each prior year you are correcting. File Form 943-X separately. Do not attach Form 943-X to your current period Form 943.

When you discover that you underreported tax on a previously filed return, you must file Form 943-X no later than the due date of the return for the period during which you discovered the error. Pay the amount you owe when you file. For example, you discover on June 15, 2009, that you underreported $10,000 of social security and Medicare wages on your 2008 Form 943. You owe $1,530 on the 2008 Form 943. To qualify for an interest-free adjustment, you must file Form 943-X by January 31, 2009, and pay $1,530 when you file.

Do not use Form 843, Claim for Refund or Request for Abatement, to request a refund or abatement of overreported social security or Medicare taxes. Instead, request your refund or abatement of taxes on Form 943-X. However, use Form 843 when requesting a refund or abatement of assessed interest or penalties.

For additional information about the new procedure for adjusting employment taxes, get the Instructions for Form 943-X. See Quick and Easy Access to IRS Tax Help and Tax Products on page 26. Also see Treasury Decision 9405, 2008-32 I.R.B. 293, available at  
http://www.irs.gov/irb/2008-32_IRB/ar13.html.

Note. Continue to make current period adjustments for fractions of cents, sick pay, tips, and group-term life insurance on your Form 943. Also, continue to use the information in Collecting underwithheld taxes from employees, Refunding amounts incorrectly withheld from employees, and Filing corrections to Forms W-2 and W-3 earlier.