TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, January 11, 2018

Trump Administration Opts For Speed Over Accuracy In Implementing New Tax Law

Washington Post, Trump Administration Opts For Speed Over Accuracy in Implementing New Tax Law:

The Trump administration is pushing American businesses to withhold less in taxes from paychecks by February, aiming to quickly deliver the boost in take-home pay that Republicans promised their tax law would bring.

But the rush could expose millions of workers to the risk of underpaying taxes to the government now, which means they might owe more than they are expecting when they file tax returns in April 2019.

Business and taxpayers looking for clarity will be appealing to an Internal Revenue Service that, according to an internal watchdog report Wednesday, is underfunded and ill-prepared to answer basic questions. ...

The IRS is urging employers to immediately change their tax withholding arrangements, even though doing so will require them to use outdated forms as they figure out how much to set aside for tax payments. The forms, known as W-4s, were tailored to measure tax payments under the old tax code, which was largely rewritten in the new law.

In the next few days, the IRS plans to issue guidelines to companies and payroll processors on how to use the old forms to calculate tax payments under the law. But there’s no simple switch-over calculation, and the uncertainty could mean workers severely underpaying or overpaying their taxes by thousands of dollars in 2018 — something that will likely remain unknown until they file their tax returns next year.

The potential discrepancies are a side effect of the expedited overhaul that the Treasury Department and IRS are seeking to implement, prioritizing speed over accuracy as the Trump administration hopes tax cuts will bolster the economy before the midterm elections.

https://taxprof.typepad.com/taxprof_blog/2018/01/trump-administration-opts-for-speed-over-accuracy-in-implementing-new-tax-law.html

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Comments

“[T]he rush could expose millions of workers to the risk of underpaying taxes to the government now, which means they might owe more than they are expecting when they file tax returns in April 2019.” You can take that to the bank. It will also create collection problems for an already understaffed collection division at the IRS, which will ultimately result in decreased collections and a larger deficit. But who cares, that won’t happen until April, 2019, at which time the 2018 midterms will be in the rear-view mirror by several months. Country first!

Posted by: Publius Novus | Jan 11, 2018 7:57:30 AM

Mnuchin's comments at his press conference yesterday Indicate Treasury will depend more on an upcoming on-line calculator accessible by taxpayers to determine withholding amounts than the coarser estimates that a W-4 can provide.

Posted by: Jay wiedwald | Jan 12, 2018 8:26:37 AM

A cynic might question whether systematic under-withholding is intended to reduce the number of voters who end up paying the ObamaCare penalty for 2017. The law allows the IRS to take the penalty out of your refund, but you don't have to pay it if there's no refund.

Posted by: AMTbuff | Jan 12, 2018 8:35:32 AM