How the IRS may mess up your paycheck this year
Beginning in February, Americans can expect to see tax reform changes reflected in their paychecks, now that the Internal Revenue Service (IRS) has unveiled its new withholding tables.
However, the new system, updated by the IRS and the U.S. Treasury Department in under one month, could leave more room for miscalculation where withholding amounts are concerned.
“I think there could [be slightly more room for error],” John Myett, director of government affairs at payroll processing firm ADP (NASDAQ:ADP), told FOX Business. “For more complex filers, they really want to take a closer look at what’s being withheld.”
The issue comes in with paperwork. Because the new tax law was passed in late December, the IRS did not have enough time to create, disseminate and collect new W-4 forms, something Myett said would have been a “herculean task.”
Instead, for this year, employers will be able to use the forms already on file, which were not designed for the new system. It’s also going to take time to educate taxpayers on certain adjustments, including the elimination of personal exemptions.
“In order to implement this within the timeframe that people were expecting … because they want to get it implemented as quickly as possible, doing a new W-4 first would’ve been unrealistic,” Myett said.
Myett added that this scenario complicates matters less than it could have if a system had been designed around a W-4 that does not yet exist.
This situation has raised concerns that Republicans rushed the legislation through before it was ready. Democrats expressed fear that Americans will owe a larger chunk of change to the IRS at the end of the year due to the confusion and potential miscalculations.
But Treasury Secretary Steven Mnuchin denied those assertions on Thursday at the White House press briefing, saying “any claims that we're doing this for political issues are ridiculous.”
Myett, who is charged with implementing the changes, also doesn’t feel that the timeline has been rushed.
“That’s pretty much realistic and pretty much what we’ve seen in the past with late tax rate changes,” he said.
The IRS will have a tool for individuals to calculate how much should be withheld from their income on its site by the end of February. The agency and the administration have urged taxpayers to utilize this tool once it becomes available, and to notify employers if anything needs to be changed.
Myett is hopeful the IRS will roll out updated W-4 forms, the next big challenge, within the next two to three months.