Your Employees Need Help with The Recent Tax Law Changes – Here’s How

The employer writes the paychecks and, as a result is often blamed for ‘bad news’ when employees get a surprise about taxes.

This often happens when employees work multiple jobs, have multiple income homes, changes in dependents or marriage, or simply a misunderstanding about what the tax talk means.  

While a typical business certainly will not offer tax or legal advice, you can provide an opportunity to say “Things may have changed! Please review and update your W-4 information with a new form.”

By providing the opportunity and reminding the employees that life changes happen which can have an impact on taxes withheld and end of year taxes owed, it paves the way for fewer conflicting conversations that start with “You (the employer) didn’t do it right!”

This is even more important because of the recent tax law changes.  While “the IRS urges taxpayers to investigate whether they need to adjust their paycheck withholding and submit a new Form W-4 to you, the employer”, there is a low chance that someone is paying attention and may have a big surprise at the end of the year. This can be easily avoided.

Your employees can use the updated Withholding Calculator on IRS.gov to do a quick “paycheck checkup” to check that they’re not having too little or too much tax withheld at work. If they take the time to work through the form now, they can avoid the potential surprises later.

Those who use the calculator and determine that they need to change their withholding must fill out a new Form W-4, Employee’s Withholding Allowance Certificate. Your employees will submit the completed Form W-4 to you. We expect that you already have a policy, process and timeframe for them to do this.

Here are a few things for your employees to remember about updating Form W-4:

• The Withholding Calculator will help determine if they should complete a new Form W-4.
• The calculator will provide users the information to put on a new Form W-4.
• Those of your employees who use the calculator to check their withholding will save time because they don’t need to complete the Form W-4 worksheets. The calculator does the worksheet calculations.
• As a rule, they should understand that the fewer withholding allowances they enter on Form W-4, the higher their tax withholding. Entering “0” or “1” on line 5 of the W-4 instructs you, the employer, to withhold more tax. Entering a larger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.
• Completing a new Form W-4 and submitting it to you as soon as possible gives more opportunity for adjustments. Because withholding occurrs throughout the year, it’s better to take this step sooner, rather than later.

Some of your employees will hopefully recognize that too much tax withheld will mean less money in their regular paycheck. If those employees change their withholding and enter more allowances on Form W-4, they’ll get more money in their paychecks throughout the year. Employees who have too little withheld are not paying enough taxes throughout the year, and they may face an unexpected tax bill or penalty when they file next year.

We know some will say “This is a forced saving account for me” and intentionally enter 0 Allowances. Since you are not their tax or legal advisor, even if there are dangers, it is not your place to advise. You can however offer IRS documents and website pages for them to better understand the benefits and pitfalls of ‘too much or too little’.

The withholding changes do not affect 2017 tax returns due this April. However, having a completed 2017 tax return can help your employees work with the Withholding Calculator to determine their proper withholding for 2018 and avoid issues when they file next year.
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You may be having difficulty with the complexities of payroll, changes in the law or as a result of high employee turnover. Your business might be growing quickly resulting in increased the bookkeeping and payroll burden. If either of these are the case, please reach out to Eric Moore here. Eric would be happy to talk to you about payroll, meeting the deadlines for filing payroll taxes.