Legal Question in Business Law in California

Here are some comments; I hope at least one of them will be helpful:

1. The IRS will not be concerned about your California withholding amount; it is only concerned with collecting Federal taxes.

2. Employers determine the correct amout of withholding by referring to the W-4 forms employees fill out when hired (and re-submit when they acquire additional family members so as to have more deductions). You need to verify that your W-4 did not, accidentally or intentionally, mis-state any information. It is fairly common for people to claim fewer deductions than they really have, so they won't owe additional taxes on April 15. Less commonly, people overstate their deductions.

3. Ultimately, you don't really need protection from either the IRS or the California tax board (FTB), so long as you file an honest return and pay what's due then.

4. You should discuss your concerns with your employer's HR or personnel department.

5. Remember that some companies don't do their own payrolls; they hire outside services to figure the gross, deductions and net pay and process the paychecks. So, if there is a problem, don't assume it's the employer's fault.

6. You might ask some fellow employees about their withholding amounts. Focus on people making about the same amount and with the same number of deductions. This will help you figure out whether the problem is specific to you, or "system wide."

I agree with everything Mr. Whipple has said. You will, however, owe whatever tax you owe at the end of the year regardless of what was withheld. So if you think they have not withheld the correct amount for state taxes, you need to start saving yourself so you will have money to pay the taxes at the end of the year. Tax withholding is really mostly just enforced savings for your tax bill. How much is withheld is ultimately irrelevant to what you owe; the withholding is just an estimate of what you will owe. The final payment or refund is then the final adjustment once your actual tax for the year is calculated on your tax return.

You also need to make sure that there is not a mistake on your W-4. Mr. Whipple is correct that you have no problems with the tax people if your employer withholds the wrong amount (except, as I said, that you will need to save money yourself to pay all the taxes at the end of the year). However, if you put incorrect information on the W-4 and the employer relies on that information to withhold less, or nothing at all, then YOU will be the one charged interest and penalties on the amount you should have had withheld. You may also want to give your employer a form D-4, which is the state version of the W-4. If you have given both a correct W-4 and a correct D-4, you will still have to pay the taxes when they come due, but it will be your employer who gets in trouble if they don't withhold as much as they are supposed to. You can find the D-4 form and print it out here: http://www.edd.ca.gov/pdf_pub_ctr/de4.pdf