AICPA wants IRS and Treasury to simplify Form W-4

The American Institute of CPAs is asking the Internal Revenue Service and the Treasury Department to simplify the draft version of the Form W-4, the Employee’s Withholding Allowance Certificate, along with the accompanying instructions.

The AICPA’s comment letter comes as the National Association of Enrolled Agents has also criticized the draft Form W4 in a separate comment letter last week, saying it raises privacy concerns, creates a substantial risk of underwithholding, and requires taxpayers to forecast a number of tax-related items that are traditionally difficult to predict (see NAEA sees lots of problems with new Form W-4).

The AICPA raised some of the same issues in its own comment letter. “The AICPA recommends a simplified Form W-4 that reduces withholding in an appropriate and fair manner without placing undue burden and onus on taxpayers and their employers,” Annette Nellen, CPA, CGMA, Esq., chair of the AICPA Tax Executive Committee, wrote in the letter.

In regard to simplicity, Nellen suggested that Form W-4 should not include nonwage income, itemized and other deductions, tax credits, and total pay of all lower paying jobs (“personal information”). She described the draft form as “unduly complicated” and said it essentially requires taxpayers to calculate their tax liability.

“Taxpayers need a Form W-4 that is easy to understand and simple to complete, thereby reducing compliance burdens and minimizing the risk of tax underpayment and penalties,” Nellen wrote.

Nellen recommended the IRS and the Treasury Department develop a simplified Form W-4 that doesn’t request personal information. She pointed out that many employees would probably be hesitant to provide their employers with spousal and family income information on the Form W-4 as it could lead to unfair and discriminatory employment practices. However, if taxpayers don’t provide their other household income, deductions and credits, they could inadvertently face the risk of inaccurate and incomplete annual withholding calculations, which could then lead to underpayment of taxes and penalties, she wrote.

To prevent the shifting of unnecessary responsibilities and liability onto employers, the AICPA recommended the IRS and Treasury should give employers a straightforward method to determine their employees’ withholding.

“The Form W-4 has transformed from a long-standing form that was systematically distributed by employers to new employees as part of their initial onboarding process, to the current draft that employers need to calculate their employees’ withholdings on an annual basis,” Nellen wrote. “This form transition is a significant change and the risks and responsibility of accurate withholding calculations have shifted to employers.”