US employers fail to withhold enough tax from one in five citizens US employers fail to withhold enough tax from one in five citizens

US employers fail to withhold enough tax from one in five citizens
08 Aug 2018

One in five US citizens will need to pay extra tax in April because their employers are not withholding enough from their salaries following changes to the law.

Based on simulations run by the US Treasury Department, the Government Accountability Office (GAO) estimates that the taxes of 30 million people — 21% of all the country’s taxpayers — are being under-withheld. This means that while they are receiving more money in their pay packet at the moment, they will have to pay up next April.

But the simulations also revealed that a huge 73% of taxpayers are being over-withheld too and so will receive a refund from the Internal Revenue Service (IRS).

Interestingly though, when the simulations were run as if the tax law had not been changed, 18% - the equivalent of about 27 million – taxpayers would have being paying too little and 76% would have been paying too much. In both scenarios, only 6% of taxpayers were paying the correct amount.

The GAO report was requested in January this year by senior Democrats on the Senate and House tax-writing committees, who asked for an analysis of withholding tables under the new Republican tax law. The GAO acknowledged that the IRS has cautioned taxpayers that it might be necessary to review and update their withholdings as a result of the new law. 

According to NPR, the Treasury Department and the IRS are responsible for updating tax-withholding tables each year, but their roles and responsibilities are not spelled out in writing. The GAO has recommended that the Treasury Secretary work with the IRS commissioner to formalise their roles.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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One in five US citizens will need to pay extra tax in April because their employers are not withholding enough from their salaries following changes to the law.

Based on simulations run by the US Treasury Department, the Government Accountability Office (GAO) estimates that the taxes of 30 million people — 21% of all the country’s taxpayers — are being under-withheld. This means that while they are receiving more money in their pay packet at the moment, they will have to pay up next April.

But the simulations also revealed that a huge 73% of taxpayers are being over-withheld too and so will receive a refund from the Internal Revenue Service (IRS).

Interestingly though, when the simulations were run as if the tax law had not been changed, 18% - the equivalent of about 27 million – taxpayers would have being paying too little and 76% would have been paying too much. In both scenarios, only 6% of taxpayers were paying the correct amount.

The GAO report was requested in January this year by senior Democrats on the Senate and House tax-writing committees, who asked for an analysis of withholding tables under the new Republican tax law. The GAO acknowledged that the IRS has cautioned taxpayers that it might be necessary to review and update their withholdings as a result of the new law. 

According to NPR, the Treasury Department and the IRS are responsible for updating tax-withholding tables each year, but their roles and responsibilities are not spelled out in writing. The GAO has recommended that the Treasury Secretary work with the IRS commissioner to formalise their roles.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

OTHER ARTICLES THAT MAY INTEREST YOU

US approves President Trump's controversial US$1.5tr tax bill

Individual income tax in Malaysia for expats

Income tax withholding to apply to all staff in France from early 2019

 

 

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