Michigan Administrative Code › Department - Treasury › Customer Service Bureau › Income Tax › Section R. 206.21 - Failure to withhold; withholding less than correct amount; liability of employer

Current through Vol. 24-12, July 15, 2024
Rule 21.
(1) If an
				employer erroneously fails to withhold Michigan income tax from compensation
				paid to an employee, or withholds less than the correct amount, he is liable
				for payment of the amount which should have been withheld, whether or not it is
				collected from the employee by the employer. The employer should correct the
				error within the same calendar year, if possible, by deducting the difference
				between the amount withheld and the amount required to be withheld from any
				compensation still owed the employee.
(2) If the failure to withhold is in a year
				other than the current year, the employer is still liable for the amount that
				should have been withheld and shall pay it to the department. Any reimbursement
				by the employee to the employer is a matter between the employer and the
				employee.
(3) If the employer fails
				to withhold the tax as required and, thereafter, the income tax against which
				the tax may be credited is paid, the tax required to be deducted and withheld
				shall not be collected from the employer. Such payment does not, however,
				operate to relieve the employer from liability for penalties and interest on
				the tax that should have been withheld.
(a)
				Example 1. An individual started a business on March 1 of the current year. He
				was an employer and the people on his payroll were employees subject to
				collection of federal income tax at source on wages under chapter 24 of the
				internal revenue code, 26 U.S.C. S4101 et seq. The employer did not register
				and start withholding Michigan income tax until August 1. The employer is
				liable for withholding the correct tax from the compensation he pays his
				employees. He should compute the tax he should have withheld from each employee
				from March 1 to August 1 and withhold this from each employee during the
				remainder of the year in addition to the correct tax that must be withheld from
				each payment of compensation. This is according to subrule (1) above.
(b) Example 2. An employer was withholding
				federal income tax from wages, but was not withholding Michigan income tax. The
				department made an audit in June, 1976, and determined the following:
Figure for 206.21
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The department assessed tax of $2,829.00 plus penalty and
				  interest against the employer. Subsequently, the employer obtained signed
				  employee wage statements from the employees and sent them to the
				  department.
Employee no. 2 claimed he filed MI-1040 returns for the years
				  1973, 1974, and 1975. The department checked its records and found returns for
				  all 3 years and that the employee did pay the tax on his own MI-1040. Since the
				  assessment had not been paid, the department reduced the assessment by
				  $1,164.00, which is the tax in the audit for the years, 1973, 1974, and 1975.
				  If the assessment had been paid, the department would have issued a refund to
				  the employer. This is according to subrule (3) above. Employee no. 1 also gave
				  his employer signed employee wage statements claiming he filed MI-1040 returns
				  and paid his own tax on the wages he received from the employer. The department
				  checked its records and could not find a return for 1973. They found a joint
				  return for 1974, but the adjusted gross income on the return was $12,000.00.
				  This was compensation the wife received as a schoolteacher. It agreed with the
				  compensation shown on the W-2 issued by the school district. The department
				  also found a joint return for 1975 and the employee and his wife reported the
				  compensation from both their employers. The department reduced the assessment
				  against the employer by $450.00 for the tax included in the audit for 1975
				  since the employee paid the tax on this compensation on his own MI-1040. This
				  is according to subrule (3) above. The department cannot give the employer
				  relief for the tax he should have withheld from employee no. 1 in 1973 and 1974
				  since the employee did not report on any MI-1040 the compensation he received
				  from the employer.
Employee no. 1 is delinquent for the year 1973 and filed a
				  false MI-1040 for 1974. The department will give the employee credit as tax
				  withheld of $328.00 in 1973 and $438.00 in 1974 at the time it confronts him
				  about his individual income tax returns. The employer shall look to the
				  employee if he wishes to get reimbursed for these 2 amounts. This is a matter
				  between the employer and the employee. See subrule (2) above. The employer may
				  recover the $449.00 tax he did not withhold in 1976 by deducting it from future
				  compensation paid the employee during the remainder of the year according to
				  subrule (1). The employees shall be given credit for these amounts on their
				  1976 W-2 plus any additional tax to be deducted for the remainder of
				  1976.