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US Urged To Trim Tax Form W-4

Monday, July 16, 2018

The American Institute of CPAs (AICPA) has urged the Internal Revenue Service (IRS) and the US Treasury Department to simplify the draft 2019 Form W-4, Employee's Withholding Allowance Certificate, and the accompanying instructions, to reduce administrative burdens on taxpayers.

Annette Nellen, who is chair of the AICPA Tax Executive Committee, wrote in a letter to the IRS that the draft form is "unduly complicated" and essentially requires taxpayers to calculate their tax liability. She recommended that Form W-4 should not include non-wage income, itemized and other deductions, tax credits, and total pay of all lower paying jobs.

Employees complete Form W-4 to enable their employer to withhold the correct amount of federal income tax from their pay. However, the AICPA says that completing Form W-4 has been transformed from a relatively simple and routine exercise into "the current draft that employers need to calculate their employees' withholdings on an annual basis."

"This form transition is a significant change and the risks and responsibility of accurate withholding calculations have shifted to employers," Nellen wrote.

"The AICPA recommends a simplified Form W-4 that reduces withholding in an appropriate and fair manner without placing undue burden and onus on taxpayers and their employers," she stated.

"Taxpayers need a Form W-4 that is easy to understand and simple to complete, thereby reducing compliance burdens and minimizing the risk of tax underpayment and penalties," she added.

Nellen recommended that the IRS and Treasury develop a simplified Form W-4 that does not request personal information, noting that many employees might be reluctant to provide spousal and family information for fear of being discriminated against by their employer.

"For example, employees may have concerns that an employer will forego a wage increase if the employer has knowledge of other family income," Nellen wrote. "An employee may also choose to not apprise their employer of self-employment or compensation from other activities outside of their employment as the employee may have concerns that the employer will perceive the employee as less willing to travel or work additional hours."

The AICPA also recommended that the IRS and Treasury should provide employers a straightforward method to determine their employees' withholdings to prevent the shifting of unnecessary responsibilities and liability onto employers.