I just discovered my wife's employer didn't withhold federal or state taxes last year. I know I have to pay the taxes but what all do I need to do to "fix" last year?

[mecii]

I just discovered today, February 5th, that my wife's employer did not withhold Federal or State taxes from her paycheck at all last year. We obviously still have to pay taxes on her income but what do I need to do differently in TurboTax to handle this? Do I need to fill out a special form, report it to the IRS, pay a penalty? We looked at her employee portal and her w4 is correct. She will be going to her payroll department first thing tomorrow to correct from this point forward but I need to know how to "fix" the problem for last year. Thank you.

[DianeW · Accepted solution]

Assuming she did receive a W2 form you will enter it as usual.  Any withholding on other documents such as your W2, will get applied to the final tax liability.

If you have a balance due, TurboTax will walk you through any answers need to compute any possible penalty.

There is nothing to report to the IRS separately from preparing your tax return.

The fact there is no federal or state tax indicates she was paid as though she was an independent contractor on Form 1099-MISC.  If this is the case use the steps below to complete the entry.

1. Select the Federal Taxes tab
2. Select Wages & Income
3. Scroll to 1099-MISC and Other Common Income
4. Select Income from Form 1099-MISC
5. Start to complete the entry of your form (image attached for review)
6. Continue to follow the program to enter any expenses