The Internal Revenue Service, having perpetrated on the public new instructions for calculating tax withholding that even seasoned accountants find befuddling, is having second thoughts about what it has wrought. Credit Treasury Secretary James A. Baker III for encouraging those thoughts. Baker has told Congress that the worksheet accompanying the latest W-4 form is too hard to understand. The IRS responded almost immediately by acknowledging the problem and saying that it will have an announcement soon. That could indicate a simpler worksheet is on the way. Meanwhile, Baker says that taxpayers should go ahead and use the new form that's in the process of being distributed. In all fairness, those who do shouldn't be penalized by the IRS if they make mistakes that result in underwithholding.
The new W-4 is intended to take account of the many changes in the tax code. Its object is to have payroll withholding approximate taxes that will actually be due for 1988. That's fine, except that taxpayers whose total withholding either deliberately or inadvertently falls short of what they will owe could find themselves penalized for denying the Treasury what it is owed. If it were a relatively simple matter to estimate what the final tax bite will be, the burden would legitimately be on the taxpayer to do the arithmetic right. But using the complicated worksheet that accompanies the W-4 form is anything but simple. The risk, then, is that taxpayers could all too easily and honestly underestimate how much should be withheld to meet their tax obligation, and find themselves in the soup as a result.