IRS Simplifies Withholding Form For Employers

by Leroy Baker, Tax-News.com, New York

15 April 2005

Employers will no longer be required to send copies of potentially questionable W-4 withholding forms to the Internal Revenue Service, the IRS announced on Wednesday.

At the same time, the IRS will step up its withholding compliance program by making more effective use of information reported on W-2 wage statements to ensure that employees have enough federal income tax withheld from their paychecks.

“We can eliminate this reporting requirement without hurting our enforcement efforts,” stated IRS Commissioner Mark W. Everson.

“Wherever we can, we try to reduce the burden,” he added.

Temporary and proposed regulations, issued by the Treasury Department, eliminate the requirement that employers send copies of potentially questionable Forms W-4, Employee’s Withholding Allowance Certificate, to the IRS, with the new regulations taking effect on April 14, 2005.

In the past, employers had to send to the IRS any Form W-4 claiming more than 10 allowances or claiming complete exemption from withholding if $200 or more in weekly wages was expected.

Forms W-4 are still subject to review by the IRS. However, employers will no longer have to submit them to the tax agency, unless directed to do so in a written notice to the employer or pursuant to specified criteria set forth in future published guidance.

This change follows a comprehensive review of the withholding compliance program conducted recently by the IRS, which found that withholding noncompliance remains a problem with some employees.

Subsequently, the IRS has developed a process to use information already reported on Forms W-2 to more effectively identify workers with withholding compliance problems. In some cases where a serious under-withholding problem is found to exist for a particular employee, the IRS will notify the employer to withhold income tax from that employee at a more appropriate rate.

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