TIGTA and IRS disagree about need to inform elderly about withholding options

The Internal Revenue Service (IRS) should increase its efforts to educate elderly taxpayers about potential exemptions from withholding tax on certain retirement payments in order to reduce unnecessary tax return filings, according to a new report publicly released by the Treasury Inspector General for Tax Administration (TIGTA).

While the IRS's public Web site instructs taxpayers on how to determine whether to file a Federal tax return and if income tax withholding is necessary, printed publications, such as the instructions for filing IRS Form 1040, do not expressly state whether taxpayers should continue to have income tax withheld on Social Security, pension and annuity payments.

"To reduce the burden and cost for elderly taxpayers, the IRS should provide seniors with a consistent message about whether payments should be subject to income tax withholding," commented J. Russell George, the Treasury Inspector General for Tax Administration. "The IRS and the tax professional community share the responsibility for educating taxpayers age 65 and older about discontinuing unnecessary withholding and avoiding the filing of tax returns when appropriate."

In August 2007, TIGTA issued a report examining the characteristics of unnecessarily filed individual income tax returns (Reference Number 2007-40-130, August 17, 2007). That report found that more than 8 million tax returns were unnecessarily filed in 2003, 2004, and 2005. Eighty-five percent of those returns were filed to obtain a refund of taxes withheld.

TIGTA's new report recommends that the IRS ensure consistency between information posted on its Web site and its written products to ensure that taxpayers are accurately advised to discontinue income tax withholding if there is little likelihood that they will be required to file income tax returns in subsequent years. The IRS also should provide outreach programs for tax professionals with respect to the tax responsibilities of elderly taxpayers.

The IRS disagreed with TIGTA's recommendations, stating its belief that revising publications and the instructions to Form 1040 would risk causing confusion for many taxpayers in order to accommodate a select group of filers. TIGTA reaffirmed its recommendations following the IRS's comments to the report.

You can read the full report, including the scope, methodology, and the IRS's complete response.

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