The Government Accountability Office (GAO) recently conducted a tax withholding “audit” for 2018 and now warns that over 32 million taxpayers can expect to owe more federal income tax when they file their 2018 Form 1040 tax returns in the Spring of 2019. The number of taxpayers expected to owe more taxes for 2018 is up considerably over previous years. The culprit!—-
When the IRS revised the federal tax withholding tables due to substantial changes in the personal income tax law enacted by the Tax Cuts and Jobs Act (TCJA), they did it hurriedly and did not properly “sync” the withholding tables to the tax law changes resulting from the TCJA. The most obvious example?—–The number of allowances which a taxpayer claims on the W-4 form they provide to their employer no longer results in federal income tax savings as they had for decades prior to this year. The TCJA eliminates tax deductions for personal exemptions/allowances in 2018, but the IRS revised withholding tax tables and also their revised 2018 W-4 form still requests the “number of allowances” which a taxpayer is claiming.
Bottom line—-the new/revised tax withholding tables issued by the IRS are inconsistent with the new tax law and thus they do not accurately withhold tax from payroll consistent with an employee’s federal income tax obligations.
As a long-time tax advisor, I cannot recall a year in which the IRS has continually warned advisors to educate taxpayers about the flawed tax tables (the IRS does not use the term “flawed”), and continually is encouraging taxpayers to perform a “payroll checkup” to determine if their tax withholdings are adequate for this year—it seems that the IRS is very aware that their tax withholding tables for 2018 are not accurately withholding a taxpayer’s federal income tax obligations, and in many cases are underwithholding taxes. The IRS is obviously very concerned that many more taxpayers will owe federal income tax this year and may not have the money to pay their taxes when they file their 2018 Form 1040’s
SO WHAT SHOULD AN EMPLOYER DO?
Employers can help their employees avoid a nasty Form 1040 “tax surprise” next Spring by encouraging them to check their withholdings for 2018 as soon as possible—–Feel free to use this PayDay e-letter as well as our 2 previous PayDay’s earlier this year as articles to share with your employees. Our 2 earlier PayDay’s on this subject matter this year were “2018 Tax Tables and W-4 Changes” and “New W-4 Form for Withholdings”. Both of these earlier PayDay’s provided ‘tips” on how your employees can check their federal income tax withholdings and adjust them with new W-4 forms now if necessary. These previous PayDay’s include IRS suggestions on using their online withholding calculator as well as some of AccuPay’s ideas on how an employee can check their tax withholdings by comparing them with their 2017 Form 1040/W-2 form.
WHAT ABOUT YEAR 2019?
The IRS has made several efforts at creating revised 2019 W-4 forms which are consistent with the new TCJA law provisions——the decades long “how many exemptions should I claim” employee questions on W-4s are no longer relevant since “exemptions” no longer provide any “tax savings value”, starting in 2018. At this point, the new 2019 IRS W-4 form is way too complex for most people to prepare (several pages of instructions, almost like preparing the 1040 form)—–so we expect that the IRS will continue revising the 2019 Form W-4 until they feel it is both accurate and not overly complex to use.
MAKE SURE ACCUPAY IS AWARE OF ANY REVISED EMPLOYEE W-4 FORMS
For those employees who do review their 2018 federal tax withholdings and provide you with an updated year 2018 Form W-4, make sure you submit the revised W-4 to AccuPay so we can change your employee’s federal income tax withholdings.
If you have any questions or concerns about your employees’ 2018 W-4 forms and/or tax withholdings, please call your payroll specialist at 317-885-7600.