W2 Question

[JJStephens]

I have a client who is employed part-time as a clergy person. 100% of her relatively small salary is designated as housing allowance; therefore, the amount in box 1 of her W2 will be zero. She still wants to have federal & state income tax withheld (she also has rental income and wants to avoid having to make estimated payments).

My question is: can box 2 (fed tax withheld) exceed box 1 (wages)? I deal primarily in clergy taxes and ran into a similar situation a couple years ago. I think I remember finding a cite that withholding cannot exceed taxable wages but I can't put my hands on it now.

[JJStephens]

I ended up talking with an IRS W2 'expert'. After about 20 minutes on hold she told me that box 2 cannot exceed box 1. I asked for a cite and she told me that she couldn't find one but that she and everyone she talked to said that you cannot have withholding if you don't have income.

I reminded her the client has income, it's just not taxable/reportable. She said this was a unique situation but continued saying their computer is set up to reject any W2 that has withholding in excess of taxable comp.

I guess you can't withhold something from nothing, even when nothing is really something ;)

[jainen]

>>their computer is set up to reject any W2 that has withholding in excess of taxable comp<<

I don't see how that could be true. How would an employer handle withholding on taxable fringe benefits that exceed cash payment? How about insufficient wages to cover withholding on tips?

On the other hand, I recommend you don't try any unusual methods--I mean, why not ask the tenant to do the withholding? Come on, you have to deal with payment of SE tax anyway so just make ES payments and pray for grace.

[kcjenkins]

Why not just set her up with estimated payments? Seems you are trying to make this too hard.

[Don in Upstate NY]

My question is: can box 2 (fed tax withheld) exceed box 1 (wages)?

Here's a legit W2 that I received from my pension provider several years ago. At that time I could not e-file because withholding could not exceed half of gross. That rule has since been modified - I e-filed one this year where withholding was equal to gross.

Looking thru Pub 1346, the only relevant error message that I found was for a W2G, where withholding could not exceed winnings.

[JJStephens]

Thanks all for your input.

I had already recommended estimated payments. "I don't want to have to bother with it--you handle it" (I'm also their payroll provider). Now that client knows it can't be done she thinks estimated payments are a pretty easy solution. Deep, deep sigh. TGI4/18!

[Catherine]

Thanks all for your input.

I had already recommended estimated payments. "I don't want to have to bother with it--you handle it" (I'm also their payroll provider). Now that client knows it can't be done she thinks estimated payments are a pretty easy solution. Deep, deep sigh. TGI4/18!

May be too late for this year if you've filed her return, but you can now schedule _Federal_ estimated payments a year out when the return is submitted. Doesn't help with the state, though. And the client has to remember to have $$ in the account that day.

[joanmcq]

I've seen audit letters where TT allowed withholding to exceed wages (tp forgot the decimal on withholding) and they went through. Got a letter correcting the return of course, but then the W-2 did NOT say they had a million + w/h on it!