Form 843 and 8316 Employer Penalty – Money & Services

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I am a small business owner and one of my employees is an OPT student who is currently applying for HB-1 status. I was just made aware that for the past few months we have been taking Social Security and Medicare withholding for his pay. I understand now that this should not be the case. I made our payroll company aware of his status and from this point on the withholdings will not taken out. The payroll company will also refund all the SS and Medicare for 2008.

However for the pay periods in 2007 the payroll company claims that obtaining this refund would be a costly process. My initial reaction is refuse this employee a refund and tell him to file form 842 and 8316 to get a refund for the 2007 withholdings.

My questions is what kind of penalty is my company facing by refusing this employee his refund? Is the company obligated to refund? If we did from what I understand, we would cut a check for the total and in the end the company takes a loss and the government takes keep what should be in my employees pocket… doesn’t make much sense for the company to take this loss, unless the is potentially ramifications to all this.

Any thoughts/advise would be helpful. I am trying to understand this from an the employer side as well as the employee.

Answer

I am not really sure how to answer, because I have never looked at it from the company’s point of view.

When your employee submits the Form 843 to request his refund, I suppose the IRS COULD come back to you and ask why you withheld these taxes. However, I cannot see them fining you for paying taxes you were NOT supposed to pay,

Remember that YOU matched what the employee paid, and his submission of Form 843 will NOT get you your money back. Hence, In my opinion, if you can get the money back, you should try to get the money back.

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