Get set for tax reform
WHATEVER illusions we have had that the new US tax law was to be a simplification should evaporate as the new W-4 forms are distributed. For the first time since withholding was introduced during World War II, the entire nation of wage earners will be having to file new W-4 forms all at once.
In fairness we note that the Internal Revenue Service protests the characterization of the new version of the W-4, the form which indicates to employers how much tax should be withheld from paychecks, as a ``four-page form.'' The new W-4, like its predecessor, is just a half-page sheet.
What's new is the extra worksheets coming with it, which, as an IRS spokesman says, will enable taxpayers to ``personalize'' their withholding. The calculations will be more precise, so that fewer taxpayers either get refunds or have to pay up by April 15.
The quest for precision is laudable. But this will still be a huge undertaking - for millions of taxpayers as complicated as filing their actual tax return.
New W-4s are needed because the new law combines lower tax rates with elimination of certain tax breaks; taxpayers who let their employers withhold at the new rates, but as if the old breaks were still in place, risk being seriously underwithheld. Thus, in its concern for the citizenry (and presumably for the federal cash flow as well), Congress mandated new W-4s.
Hitherto it has been acceptable to make up any underwithholding by April 15, if the shortfall was less than 20 percent of total tax liability. Under new rules, if the shortfall is more than 10 percent, penalties may be due.
Employees should demand the new forms right away to get their tax withheld at the correct new level as soon as possible. But if new W-4s aren't filled out by Oct. 1, employers will be required to withhold tax at the maximum level. Moreover, starting in 1987, the IRS will pay out one percentage point less in interest on late refunds than it demands of taxpayers on late payments.
The IRS has, to put it kindly, an image problem. It's unfortunate that even when it mandates a necessary action, it does it in a way that will cost millions and millions of dollars, and take hundreds of millions of manhours.