Bauman CPA - Tax Alerts - May 2010 - TIGTA targets withholding, shortfalls among higher-income wage earners

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TIGTA targets withholding, shortfalls among higher-income wage earners

The Treasury Inspector General for Tax Administration (TIGTA) has reported that the IRS is losing hundreds of millions of dollars in lost revenue because higher-income wage earners are not having enough taxes withheld. TIGTA's report, "Withholding Compliance Program Results Are Trending Favorably, But Program Enhancements Are Needed" (Reference No. 2010-40-030), found that the IRS's Withholding Compliance Program has limitations that may be preventing the collection of significantly more tax revenue.

Income tax withholding

In Fiscal Year (FY) 2008, about $970.7 billion (more than one-third of total tax revenues for the year) were collected through income tax withholding. Because of income tax withholding, tax payment compliance is generally very high among wage earners who have a sufficient amount of taxes withheld from their pay.

The IRS's Withholding Compliance Program identifies taxpayers with withholding problems and works to increase the amount of tax withheld. The Withholding Compliance Program uses information from Wage and Tax Statements (Form W-2) to identify taxpayers with insufficient withholding.

TIGTA recommendations

TIGTA recommended that the IRS develop and implement a statistically valid plan to study the extent of under-withholding among all taxpayer populations, including higher-income wage earners. The IRS should use the results to adjust, if needed, the case selection methods in the Withholding Compliance Program. According to TIGTA, a greater focus on higher-income wage earners could result in an estimated collection boost of $320 million to $1.6 billion in additional taxes.

TIGTA, "Withholding Compliance Program Results Are Trending Favorably, but Program Enhancements Are Needed" (Reference No. 2010-40-030)