The National Association of Enrolled Agents (NAEA), recently wrote a letter to acting IRS Commissioner David Kautter discussing the new draft Form W-4 and, after reviewing the form, my perspective is the same as the NAEA’s in that the average taxpayer cannot fill this form.
The letter the NAEA wrote to the acting Commissioner says:
We believe that the form as currently drafted raises a number of serious concerns. Namely, it:
• increases, unnecessarily, burden on both taxpayers and employers;
• raises privacy concerns by allowing inappropriate disclosures to employers; and
• creates a substantial risk of underwithholding.
The letter goes on to discuss the burden the new form by stating:
While the new Form W-4 raises a number of issues relative to burden, we focus on the fact that first, the Form W-4 Instructions and accompanying worksheets, at 11 pages, are too long and too complicated. Second, taxpayers are asked to forecast other tax-related items that are traditionally difficult to forecast. Finally, the new form requires taxpayers to calculate the value of tax credits and shifts significant new burden to employers.
The draft version of the form requires workers to disclose to their employers things like their income, tax credits, etc. thus, taking away any privacy that you had about your personal tax situation. No longer can you tell a client to claim “Single” and “1.” The NAEA has this to say:
The new form asks taxpayers to forecast other tax related items that are traditionally difficult to forecast. We are particularly concerned by the following:
• tax deferred retirement plan contributions
• scholarship and grant taxability
• work-related child and dependent care expenses
• tax year wages and bonus
• other income from self-employment and nonwage income
• medical and dental expenses
• property taxes
• mortgage interest
Contributions to tax-deferred retirement plans and other non-taxable portions of compensation are often not evenly distributed throughout the year and often unknown at the beginning of the year. Scholarship and grant taxability is often unknown until the end of the tax year.
Work-related child and dependent care expenses can vary wildly between any two tax years. Few are able to calculate accurately bonuses and wage increases—aside from the wisdom of telegraphing to an employer both of those estimates.
Under TCJA, exemptions were suspended for some reason. Another point the NAEA brings up is we should move back to an exemption or point-based W-4 form. If the draft W-4 becomes permanent then professionals will be burdened in January by clients on how to fill this form out.
Besides, income and tax credits fluctuate and there is no way to predict that. In short, the new W-4 is not only cumbersome, it is setting clients up for paying more or less in taxes than they traditionally have. The TCJA is complicated enough, why take the extra step and make the basic W-4 just as complicated?
Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as...