IRS Unveils Complicated Tax Form on Withholding

WASHINGTON —  The Internal Revenue Service on Tuesday introduced the new form that will give more than 100 million Americans their first taste of tax reform. It is twice as long and considerably more complex than the old version.

The form, called a W-4, tells employers how much in taxes to take out of workers’ paychecks. People normally file one when they begin a new job, but every wage earner in the nation will be required to file the new withholding form by Oct. 1.

Penalty Is $500

However, if taxpayers wait until the last minute to file the new W-4 forms, they may find their employer has taken out too little in taxes for the entire year. The penalty for substantial under-withholding is $500.

If the form is not filed by the deadline, employers will begin withholding only one exemption for a single taxpayer and two for a joint return. For many people, that will result in taking out too much for taxes.

Hundreds of millions of the forms will be sent to employers over the next few weeks, and the IRS predicts that most of them will be distributed to employees by the end of the year. A week or two after a worker files the form with the company, his withholding amount will change.

Although the law was intended to make the tax code simpler and fairer, experts predicted some snags during the massive nationwide exercise in paper work.

Problems Seen

“People are going to have trouble filling it out,” predicted Gerald Portney of the accounting firm Peat Marwick Mitchell. “One reason is, it’s different. And, secondly, people don’t know anything about it.”

Several items were added to the new form--such as the inclusion of income from a working spouse--to give the taxpayer a more precise estimate of the taxes he will owe, but each taxpayer has to do his own math. Completing the work sheet, which will give taxpayers a rough idea of how much their taxes will be, entails four sets of additions, two subtractions, one multiplication and two divisions.

To figure out how much to have withheld from their taxes, people will have to make a rough calculation of how the new law will change their taxes, even though they may not be familiar with its provisions. Although the IRS is planning widespread efforts to instruct taxpayers, the form’s directions may prove obscure.

‘Personalize’ Amount

IRS officials admit that the new form--which, with the accompanying work sheet, doubled in length from two pages to four--is complex. But they said it will let taxpayers “personalize” their withholding amount, so their employers deduct exactly what they will owe in taxes, rather than finding themselves with owing a large payment, or due a large refund the following spring.