A lot of payroll accountants have been impatiently waiting for the IRS to update their tax tables for the purposes of payroll withholding and calculating employees’ paychecks. As a consequence of federal legislation reforming the tax code, many people are facing a slightly lower tax burden this year. It’s no surprise: People and politicians alike want to see that money sooner rather than later.
Or do they? It’s easy to think that you want that money as soon as possible, but with so many variables at play, it’s no simple calculation to determine a household’s total tax burden. Moreover, many people look forward to receiving a refund each April even to the point that they count on it as part of their annual spending habits. Even if it’s self-imposed, a kind of forced savings helps people who would otherwise spend the money on more frivolous items throughout the year.
It’s also the kind of thing that drives a lot of accountants nuts. Not so much the calculations themselves per se, but the philosophy of needlessly giving the federal government an interest-free loan. It’s an odd thing. Taking a portion of our paychecks and putting it in a savings account instead of letting these funds sit in the account of the U.S. Treasury sounds simple enough. But it never is that simple. As local and state governments implement their own modified tax rules and as key household circumstances change, an employee’s tax liability can also swing wildly.
Without a doubt, different people prefer different withholding strategies for their tax burden. At the end of the day, what can really mess with people is a lack of clarity. It’s when they think enough of their income is being withheld to create a refund at the end of the year only to end up with an outstanding tax liability that they get discouraged and angry. As has been reported by other news outlets, here’s a piece from Certified Employee Benefits Specialist Stephen Miller about how even the IRS is struggling to generate new tax tables that accurately reflect Americans true tax burden.
Payroll accountants must stay diligent in coordinating these new tax tables with their employees’ understanding of their payroll withholding. Some of it can be couched as inherent uncertainty stemming from a new federal tax code, but this excuse only goes so far. Moreover, this uncertainty can provide an opportunity to help employees’ better understand their paychecks and foster greater trust and job satisfaction throughout the company’s human resources.