The AICPA’s Tax Executive Committee sent a letter to the IRS on Thursday, urging the Service to simplify the proposed draft 2019 Form W-4, Employee’s Withholding Allowance Certificate, to reduce administrative burdens by not requiring an annual Form W-4 calculation, protect employees’ privacy by omitting personal information from the form, and avoid shifting the onus onto employers to determine employees’ correct withholding.
The letter, from Tax Executive Committee chair, Annette Nellen, said that the form should be simplified, so that it does not include nonwage income, itemized and other deductions, tax credits, and amounts of income from lower-paying jobs. Requesting this personal information requires employees to essentially calculate their tax liability, the letter noted. It also is potentially an invasion of privacy because the employer will see the employee’s personal information.
The AICPA recommends these alternatives to the Form W-4:
- Allow the employee to use a simplified method based on the standard deduction to estimate their total gross income;
- Allow the employee to withhold an additional or reduced amount of tax, similar to the current Form W-4; and
- Permit the employee to choose an alternative if he or she does not want to provide the employer total gross income to have a specified amount withheld from each paycheck or have the prior year’s withholding apply.
The draft 2019 form is more difficult to complete than the 2018 form, and the letter noted that the IRS’s suggestion that employees use the IRS withholding calculator does not take into account that taxpayers would need to understand their eligibility for various credits and the changes to itemized deductions under the new tax law, P.L. 115-97, commonly referred to as the Tax Cuts and Jobs Act (TCJA), and how the deductions interact with the standard deduction. The draft form also could create an unfair withholding burden on couples with similar income, potentially resulting in all of the withholding being taken out of one person’s salary instead of being allocated fairly between the spouses.
To protect employees’ privacy, the AICPA emphasized that employees should not have to divulge spousal and other family income to have their withholding calculated correctly. The old form asked for this information on a separate worksheet, which the employee would keep for his or her records. The employer did not see it.
Finally, the AICPA emphasized that the new form puts the onus on employers to accurately calculate employees’ withholding. The form would essentially need to be updated every year, whereas it was previously only required for new employees or when an employee had a significant life change that would affect his or her tax liability.
The AICPA pointed out that it is unclear how much due diligence is required of employers to correctly determine their employees’ tax withholding. It recommended that the IRS issue a revised Publication 15 (Circular E), Employer’s Tax Guide, to help determine the employee's withholding.
— Sally P. Schreiber (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.