AICPA Urges IRS and Treasury to Simplify Draft Form W-4

The American Institute of CPAs (AICPA) urged the Internal Revenue Service (IRS) and the U.S. Department of the Treasury to simplify the draft 2019 Form W-4, Employee’s Withholding Allowance Certificate, and the accompanying instructions in a July 12 letter.

“The AICPA recommends a simplified Form W-4 that reduces withholding in an appropriate and fair manner without placing undue burden and onus on taxpayers and their employers,” Annette Nellen, CPA, CGMA, Esq., chair of the AICPA Tax Executive Committee, wrote.

Regarding simplicity, Nellen wrote that Form W-4 should not include nonwage income, itemized and other deductions, tax credits, and total pay of all lower paying jobs (“personal information”).  Nellen described the draft as “unduly complicated” and stated that it essentially requires taxpayers to calculate their tax liability.  “Taxpayers need a Form W-4 that is easy to understand and simple to complete, thereby reducing compliance burdens and minimizing the risk of tax underpayment and penalties,” she wrote.

Nellen recommended that the IRS and Treasury develop a simplified Form W-4 that does not request personal information.  She explained that many employees likely are apprehensive that providing employers with spousal and family income information on the Form W-4 can lead to unfair and discriminatory employment practices.  If taxpayers are unlikely to provide personal information about their other household income, deductions and credits, they inadvertently face the risk of inaccurate and incomplete annual withholding calculations, which could then result in an increased level of underpayment of taxes and penalties, she wrote.

Lastly, to prevent the shifting of unnecessary responsibilities and liability onto employers, the IRS and Treasury should provide employers a straightforward method to determine their employees’ withholdings, Nellen stated.  “The Form W-4 has transformed from a long-standing form that was systematically distributed by employers to new employees as part of their initial onboarding process, to the current draft that employers need to calculate their employees’ withholdings on an annual basis.  This form transition is a significant change and the risks and responsibility of accurate withholding calculations have shifted to employers,” she wrote.