Congressional auditors say about 30 million people – 21 percent of U.S. taxpayers failed to change their withholding this year. That caused employers to withold too little from their paychecks under government tables keyed to the new tax law. About 27 million taxpayers would have been affected even if the new law hadn’t been enacted. The changes, however, added 3 million wage earners to that number. Most of those are high income earners.
After the tax cuts went into effect, new tax withholding tables for employers were put together by the government early this year. About 30 million workers received pay that was “under-withheld.”
The Treasury Department and the IRS are responsible for updating the tax withholding tables each year. Highlighting the importance of accurate tables, the GAO said Treasury and the IRS currently don’t lay out in writing their roles and responsibilities for annual updates. The auditors recommended that they do so, in accordance with federal standards for internal controls.
Treasury and the IRS agreed with that recommendation, the report said.
Part of the problem may be that democrats and the media had convinced taxpayers that the tax law would not benefit them causing tremendous confusion. Taxpayers decided to do nothing to see what came out in the wash. Now they know.
Tax experts suggest that all taxpayers look at the online tax withholding calculator issued by the IRS in February, to ensure they are having the correct amount withheld. Taxpayers also should update the information on their W-4 forms, experts say.
The IRS has said the new withholding tables should produce an accurate withholding amount for people with simpler tax situations. But experts say those who will still itemize under the new law, or have larger families or more complicated tax situations may want to take a closer look.
The GAO’s assessment comes as news emerged that the Trump administration is considering bypassing Congress to give a big tax break by reducing taxes levied on capital gains. The media is describing it as a tax break for the wealthiest Americans but a simple look at the tax tables shows that capital gains start at incomes as low as $38,601 for single filers. Most middle income Americans have some form of capital gains. Administration officials said no decision has been made on whether to proceed.
Cutting capital gains taxes was one of only a few items on the wish list of conservatives and Republicans that didn’t make it into the massive tax law hustled through Congress late last year by Republicans, which became President Donald Trump’s signature legislative achievement. The $1.5 trillion package provides generous tax cuts for most ordinary individuals and families. No Democrats voted for the legislation.