As 2017 draws to a close, many of us will begin thinking about filing tax returns as early as possible next year. Rest assured the IRS is thinking about it too. They recently began a campaign to remind taxpayers about several different things, including withholding and early filing. Small businesses can help their employees by passing on IRS reminders to workers.
This year the IRS has decided to focus on two areas of priority for their annual reminders: checking employee withholding and guarding against tax fraud. Both issues have become bigger problems in recent years, thanks to changes in the law and more sophisticated techniques being employed by identity thieves.
At BenefitMall, an online payroll provider based in Dallas, employee withholding is always a top priority. They work with their clients to ensure that all employees are subject to proper withholding of payroll taxes so that employers can set aside the necessary funds, make timely tax deposits, and keep up with filing requirements. They see withholding as a bigger issue for them than tax fraud.
Checking on Withholding
Where withholding is concerned, the IRS is now encouraging employees to review their current withholding to make sure it is accurate. Every American employee is entitled to at least one withholding exemption for themselves. Those who are married can claim a second exemption for their spouses; additional exemptions can be claimed for children and adult dependents. With every dependent claimed, less money is withheld for payroll taxes.
The difficulty here is making sure that withholding information is accurate. If it is not, employers could unintentionally withhold too much or too little for payroll taxes. Too much withholding results in a refund at the end of the tax year while withholding too little results in a tax bill. Neither is ideal.
According to BenefitMall, paying too much is like giving the government an interest-free loan. They recommend setting withholding parameters to just what it takes to cover tax liabilities and limit refund amounts. By the same token, nobody wants to be stuck with the tax bill in the spring, so withholding has to be sufficient enough to guarantee all taxes will be paid.
Tax Fraud Considerations
The IRS is also recommending that employees take the necessary steps to protect themselves against tax fraud. This includes being particularly diligent about sharing information online, avoiding being careless with smartphone use, and other similar things. They are also warning that refunds due to early filers may be delayed in 2018 as a result of new anti-fraud legislation.
People who file their tax returns before the end of January – especially if they are claiming the Earned Income Credit or Additional Child Tax Credit – are likely to have their refunds delayed until after the deadline for employer reporting. This gives the government time to compare tax return information with employer filed forms for determining accuracy. The goal here is to reduce tax fraud by comparing data rather than relying on tax returns alone.
A Team Effort
Considering the IRS warnings for 2017 makes it clear that avoiding tax problems is a team effort. Employees are ultimately responsible for ensuring that their taxes are paid, but employers and third-party payroll services have an obligation to assist workers where they can.
As an employer, now is an appropriate time for you to start checking employee information for accuracy. Encourage workers to check their own withholding as well. And if you are not yet using an online payroll provider like BenefitMall, now is as good a time as any to start moving in that direction.