Keeping a Bigger Piece

Here's some not-so-great news from Marketwatch on how the IRS is cracking down on tax withholding:

The IRS is cracking down on employees who have too little tax withheld from their paycheck and will also put employers in its sights if they try to shield underpaying workers by endorsing questionable W-4 forms.

Here are the details:

Instead of just relying on the W-4s themselves, the IRS will start looking at individual tax returns to determine who is not having enough withheld.

If you have a balance due and you don't pay those taxes when you file your tax return, the first thing IRS will do is to look at your W-2s to see how much total federal income tax was withheld. If it is clearly inadequate, both you and your employer will be getting letters from IRS telling you to file a new W-4 to raise your withholding.

If the IRS asks for the new W-4 and you don't reply, or if IRS rejects your calculations on the form, a "lock-in" letter will be sent to you and to your employer setting and freezing your withholding at the rate IRS requires.

Yikes! Does anyone else think this is a bit much? But it gets worse:

Now here's the really tough part. If you don't comply, or if you try to get around the rules by filing a new W-4 or if you quit your job and start working for a new employer who doesn't have the IRS lock-in letter, you'll face penalties.

The piece ends with some good advice:

And if you're one of the millions of taxpayers always behind on your taxes, perhaps this is a wake-up call to get your finances straightened out. If you're having trouble paying your taxes with your current income, perhaps you need to do some tax planning or get the help of a professional.

Now I'm not in favor of people not paying their taxes according to IRS regulations, but anytime the IRS gets a bit tougher than usual, I see red lights flashing. BIG red lights.

Maybe it's just me. What are your thoughts?

Comments

[Blaine Moore (Run to Win)]

So, if I did not want any money withheld I would not be able to do that anymore, even if I paid up every year on time?

[jim]

I don't particularly mind but it should put a little concern into the minds of the people who game their W-4's to pay as little as legally possible by claiming too many exemptions.

[Dus10]

More government control. That is why we need the Fair Tax, and no more IRS.

Jim: just because you do not have it deducted does not mean you get away with not paying as much in taxes... you still have to file a return and determine who owns who.

[David]

I just went through this with my W-4's, because I got married recently. It took my four hours to figure out how much my wife and I need to have withheld. And because of that AMT (which hits us now that we're married, but didn't hit us when we were single), I have to have MORE withheld than what the IRS's withholding tables say I have to do.

If the IRS is going to start cracking down on withholding, then they ought to take a look at just how difficult it is to get the withholdings right, even when you're trying to do the right thing and take a conservation approach to your taxes.

[Carolyn]

I've never gotten our withholding correct. End of year bonuses always screw me up. This year I had an extra $200 a month withheld (beyond what the W-4 said) so we'll see how this year goes. I pretty much always expect to whip out the checkbook at tax time. It'll really piss me off if they come after me, because I honestly am trying to have the correct amount withheld.
It's so ANNOYING that we don't have any deductions, and it annoying that the harder you try to succeed the more you pay in taxes. Is it not disturbing that if you have no motivation you get to live basically tax free? But if you have two hard workers in a household (and no huge mortgage interest to deduct), prepare to pay out the butt!
Can anybody tell how much I HATE the current system?

[Joshua K]

Couldn't they use the tax money in some other way?

What's the point of having a W-4 ?!

Blaine,
It seems as though you can have no money withheld, but once they're unable to collect or don't receive the payment upon filing, then they'll force it.