Taxpayers could owe in 2019

Administraiton touts speed, not accuracy, with new law

WASHINGTON — The Trump administration is pushing American businesses to withhold fewer 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 taxes 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, told Congress that the agency would need at least $495 million in 2018 and 2019 to meet the new obligations created by the GOP tax 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employers to immediately change their tax withholding arrangements, even though doing so will require them to use outdated forms as they figure out how much to set aside for tax payments.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 tax 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 switchover 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 on 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.

“Our view is that would be an extremely tight time frame,” said Eira Jones, leader of Deloitte’s national employment tax practice. “It’s likely there would need to be a greater testing period.”

Jones said March would have been a more practical goal for the paychecks to be adjusted.

The law cuts income tax rates at all levels for the next several years, meaning most taxpayers will see at least modest decreases in their federal bills.

The process of withholding taxes from paychecks “will be less precise but it’s really hard to quantify how much less and how bad it will be,” said Mark Mazur, a former senior IRS official who is now executive director of the Tax Policy Center.

For years, companies took some basic information from their employees into account before determining how much money to withhold from their paychecks, and this information was collected on the W-4 form. But the new tax system is different, and some of the questions from the W-4 are no longer relevant. The Treasury Department and IRS have given little information about how they are designing the new tax withholding system under the outdated W-4 forms.