What Happens When There’s a Withholding Tax Error?

What happens when there’s an error in the withholding tax applied to an employee? To answer this question, it’s important to remember that the employer is legally obliged to handle these tax deductions and transmit the amount deducted to the tax administration (Administration des Contributions Directes).

But to do so, the employer needs the employee’s tax card to determine what amount should be withheld from his or her pay for tax purposes.

Therefore, employees have the responsibility to hand their tax cards received from the direct tax administration over to employers.

If the employee fails to do so, preventing the employer from determining the applicable withholding tax amount, the employer then has the legal obligation to apply the harshest tariff provision, unless an exemption is granted by the tax administration.

In a recent case (T. trav, Diekirch, 8 November 2019, n°1424/2019), the employee did not submit a tax card to the employer during the year in question. Instead, he simply indicated to his employer that he belonged to a specific tax class that allows for more advantageous taxation than the class he belonged to in reality.

(When the employee finally delivered his tax card to the employer the following year, it revealed a higher taxation class.)

Because the employer did not have the employee’s tax card, he had the legal obligation, as mentioned, to withhold tax according to the harshest tariff provisions. However, despite this obligation, this employer simply used the tax class indicated by the employee.

Ultimately, this resulted in a deficit in the tax withheld and forwarded to the direct tax administration. Is the employer responsible for this deficit?

Article 136, §4, of the law of 4 December 1967 concerning income tax, as modified, states that “the employer is personally liable for the tax withheld as well as the tax that he should have withheld, unless, in the latter case, it is established that the failure to withhold or insufficient withholding is not attributable to him.”

When analyzing the facts submitted, the tribunal stressed that, although the employee received his tax card during the year in question, he failed to submit it to the employer in time. Additionally, he indicated to the employer that he belonged to a tax class granting him a more advantageous taxation, even though he knew that the taxation on his remuneration should be higher.

The tribunal further pointed out that the tax debt on remuneration paid to the employee is still a personal debt of the employee, even if it is the employer’s duty to handle withholding tax and pay it directly to the tax administration.

Dismissing the employer’s liability, the tribunal concluded that, because of the deficit in the tax withheld from the employee’s pay, the employee received salary payments that were not rightfully his.

The tribunal, therefore, ordered the employee to reimburse the employer the amount corresponding to the withholding tax deficit.