I'm an internal auditor at an insurance company. During a review of disability insurance claims paid in 2011, I noticed that Social Security taxes were incorrectly calcualted at 6.2% rather than the 4.2% effective in January 2011 for the payroll tax holiday. As a result, the claimants were underpaid between $20 & $40. I plan to recommend that the claimants be reimbursed the amount of the underpayment. What else would you recommend?
You could either (1) reimburse the claimants the amount of overwithholding or (2) pay for amendment of the claimants' tax returns. Social security is an element of form 1040. Taxpayers can file claim for refund of overpayment of FICA taxes as part of income tax return. The response depends on how much effort you want to force upon the claimants, and the cost involved with each option. It is possible, though, that the IRS has already identified this overpayment and refunded amounts to claimants.