The blazing sun has finally set on the 2018 tax season and it was certainly a doozy for taxpayers and tax professionals alike. Unfortunately, more change is on the horizon. This time, the IRS is planning to release a new version of the Form W-4 that will better incorporate the changes that were brought about by the Tax Cuts and Jobs Act. The goal of the agency is to help taxpayers from owing as well as to reduce the number of refunds to be issued come tax time. The problem is that the proposed changes make the form incredibly complicated.
Filling out the proposed W-4 will be much like doing your taxes all over again. Instead of claiming a certain amount of allowances based on exemptions – which were eliminated by the TCJA – the form will ask employees to input the annual dollar amounts for income from dividends and interest, itemized deductions, tax credits expected for the year, and total annual taxable wages for all jobs in the household. “Conveniently,” the new form references up to 12 other IRS publications for the taxpayer to reference when filling it out.
Sound like a complete nightmare? Tax professionals and payroll departments think so too. Privacy is at the top of the list of concerns. Spousal and family income is just not the business of anyone’s employer. Could that lead to an employee not receiving a raise or promotion because their employer feels their household income is high enough? Or that another employee is more deserving because their household income is lower? Employees might also be concerned about disclosing they have other employment or have a small side business for the same reasons. Additionally, an employer will also be privy to and protect a greater amount of personal information disclosed by employees. This leads to a concern of information security. Will this make hackers more likely to target companies they wouldn’t otherwise be interested in to obtain this information?
The good news is that the tax and payroll community spoke up about these issues and the release of the new form has been delayed until 2020. A second draft is set to be released by May 31, which will also ask for public comment. Taxpayers are certainly encouraged to send comments on the redesign. The IRS does have a history of taking concerns into consideration if there are enough of them. Once the IRS is able to review feedback, another draft will be released later in the summer. The final draft is set to be released by the end of the year in time for taxpayers to fill out for the 2020 tax year.
Stay tuned for updates on this topic and how to provide feedback once drafts are released.