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 national taxpayer advocate, an independent official within the IRS, noted the agency has estimated it would need $495 million in 2018 and 2019 to meet the new obligations created by the GOP tax law.
Funding for the IRS has fallen by about 20 percent, accounting for inflation, since 2010. Before the law's passage, the IRS expected to be able to answer only 60 percent of the 100 million telephone calls it receives annually from taxpayers — a burden expected to increase under the new law.
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employers to immediately change their tax withholding arrangements, even though doing so will require them to use outdated forms as they figure out how much to set aside for tax payments.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.
The rapid turnaround puts companies in a squeeze as they attempt to get employees the information they need to file their 2017 taxes — they are legally mandated to finish that process by the end of the month — while also preparing for the year ahead.