The Internal Revenue Service (IRS) is the government agency with the largest impact on payroll management. Since tax reform was passed, payroll professionals and payroll providers will continue to be important partners to the IRS in helping implement the many changes that reform will bring to business and individual returns.
The Tax Cuts and Jobs Act of 2017 contains hundreds of provisions and will affect virtually all economic activity in the country, according to David Kautter, acting commissioner of the IRS and assistant secretary (Tax Policy) for the U.S. Treasury. Kautter spoke at the 2018 American Payroll Association (APA) Congress about how the IRS is implementing tax reform and how the close partnership between the IRS and payroll will help ensure the seamless and straightforward filing of 2018 tax returns.
New tax reform implementation office
Implementing tax reform is a major undertaking for the IRS, involving changing and creating a vast amount of forms, instructions, and publications, as well as training IRS employees and educating the American public. In response, they’ve created a Tax Reform Implementation Office with five full-time senior IRS leaders overseeing implementation. The office was established to help make sure separated “silos” within the IRS don’t get in the way. Employing 71,000 people, it’s not surprising that everyone is not always perfectly in sync with each other within the IRS. The office identifies areas of impact, manages a consolidated enterprise-wide program, provides internal and external communication on tax reform, and addresses risks.
How tax forms and publications are affected by reform
Kautter estimates that over 400 forms, instructions, and publications will be updated as part of tax reform, more than double than for a normal year. All of the 2018 forms are in draft form as of May, 2018 and are in the review process. Instructions will be drafted by the end of May. June has been designated for the review of forms and instructions, so they can be released for public comment in July.
A number of publications have been completed as of May, 2018, according to Kautter, and they will be released in draft or final versions over the summer.
Tax reform, identify theft, and technology
Think your company uses a lot of software systems? The IRS operates 140 tax systems to process individual and business returns. Their hardware is “pretty close to state of the art,” according to Kautter, but software is another matter. Since a major responsibility of the IRS is to reduce the risk of tax-related identity theft, their software is focused on security more so than convenience. Despite being receiving 2.5 million cyber-attacks per day, 1 million of them sophisticated, the IRS states that 65 percent fewer people claimed they were victims of tax-related identity theft from 2015 to 2017.
Even with their success against identity theft, the IRS has begun updating their technology and software to help implement tax reform so that the process can go more smoothly while they retain their focus on security.
Educating IRS employees and the U.S. public
The IRS estimates that it will take 40,000 hours to educate its employees on tax reform, and they’ve already begun to implement those programs. They also anticipate a lot of questions from the public. In an average year, the IRS receives 64 million phone calls. And the last time major tax reform was undertaken in 1986, their average number of calls increased 14 percent. Of course, today we have the internet, which allows people to look up many of their own answers. However, the IRS currently runs one of the largest call centers in the world and they’re preparing answers for a significant number of questions to come.
The IRS will also be holding public events in cities around the country and is developing and sharing educational materials through traditional and social media. Kautter indicated that these materials are posted on the IRS website as they’re created. On the site there’s a tax reform link that goes to every piece of information the IRS has created around tax reform.
The cost of tax reform
How much does it cost taxpayers to implement tax reform? Kautter said the IRS asked for over $300 million and has received $320 million to date. The vast majority of which will be spent on technology (73 percent) and the education of the public and IRS employees (19 percent). The IRS is also looking to hire around 1,700 new people to help support this significant undertaking.
The role of payroll
Payroll withholding is critical to tax reform. Kautter said that the IRS appreciates the valuable advice and counsel provided by the APA as well, as the government agency has embarked on changes to withholding. He noted that most employees fill out a Form W-4 on their first day of work and never think about it again. He hopes that payroll departments will help encourage employees to review their W-4s and take advantage of the IRS withholding calculator. This gives business owners and employees an estimate of their income tax liability so they can make sure they’re not under- or over-withholding.
If passing tax reform seemed like a long, difficult process, implementing it is much more so. This update from the acting commissioner of the IRS has shown that it’s a process that can be completed in a way that helps ensure that everyone from business owners, to employees, to payroll departments understand what’s required of them and the effects it may have on the economy.