Many don’t understand withholding or the form
Payroll pros have heard a lot about the recently revamped W-4 by now. But most of your employees aren’t in the same boat. In fact, the form might not even cross their minds.
A new survey from the American Institute of CPAs (AICPA) confirms what you may already suspect: Many workers aren’t aware of current tax law or the need to complete and submit a new W-4 to Payroll.
Myths v. reality
Out of all the taxpayers AICPA surveyed, 37% weren’t familiar with Form W-4, and 11% had never even heard of it.
What’s worse: Although the majority of taxpayers (63%) claimed they were familiar with the W-4 and how it works, they still have several misconceptions about it.
Example: 67% incorrectly believed that you can only update the form once a year. And 52% thought that if both spouses of a married couple are employed, only one needs to complete a W-4.
With that in mind, it’s not surprising that a majority of workers didn’t submit a new Form W-4 to Payroll after the 2020 redesign. Only 26% of taxpayers surveyed have updated their tax withholding info since the new form was released.
A handful of taxpayers (16%) first updated their withholding info back when the Tax Cuts and Jobs Act was initially announced.
But here’s what’s concerning: 45% of respondents had no idea when they last updated their withholding.
This outdated withholding info can make life much harder for Payroll—especially if employees receive unexpected tax bills and come to you with questions about their deductions.
That’s why it’s a good idea to remind workers to double-check their tax liability as you wrap up year-end duties. The sooner they make any necessary adjustments in 2021, the less likely they’ll get an unpleasant surprise when filing returns later.
Employees can still take their recent paystubs and use the IRS’ free tax withholding estimator (irs.gov/individuals/tax-withholding-estimator) to see if their current withholding is accurate or if completing a new W-4 is necessary.