WASHINGTON — The Internal Revenue Service gave taxpayers an early Christmas present today, announcing that it will not impose penalties on workers who had too little withheld from their paychecks this year because of the new tax law.
IRS Commissioner Lawrence B. Gibbs said a preliminary estimate was that the decision would cost the government about $86 million in penalty payments that otherwise would have been collected from taxpayers.
Gibbs said the confusion generated from the new W-4 tax-withholding forms was a primary reason behind the decision to waive the penalty fees.
He said the agency recognized "the confusion when we initially designed a correct but complicated W-4 form and then redesigned an easier, alternative form."
The commissioner said the waiver of penalties will apply only to underpayments of taxes covering wages. It will not apply to underpayments of taxes from other income, such as interest and dividend payments.
As part of the big tax overhaul last year, Congress directed the IRS to produce a W-4 form that would more accurately permit taxpayers to balance their tax withholdings with their tax liability. The W-4 form allows taxpayers to claim the correct number of withholding allowances.
Instructions Too Complex
In striving for accuracy, the IRS ended up conceding that its instructions and work sheet were too complex. After complaints about the initial W-4 form were raised in February, the agency brought out a shorter W-4A form and taxpayers were given the option of using either.
Gibbs said that next year only one W-4 form will be used. He said the new form will be very similar to the shorter W-4A version.
Gibbs' announcement that withholding penalties on wages will be waived for 1987 taxes was made at a press briefing at which he outlined IRS procedures for this year's tax filing season.
More than 98 million Americans will receive their 1987 federal income tax form packages in the mail beginning Saturday.
New Forms Similar
Gibbs said that despite the sweeping changes made in the tax law by Congress, taxpayers will find that the new forms generally look much like last year's. The 1987 tax season is the first under the Tax Reform Act, which was passed by Congress in late 1986.
Gibbs said because of the changes that have been made, all taxpayers should begin looking over the new forms and instructions when they arrive to enable people to gather the information needed to fill out their returns accurately.
During the tax-filing season from Jan. 1 through April 15, the IRS will operate a nationwide system of toll-free telephone lines to answer taxpayers' questions. In addition to regular hours, the system will operate on Saturdays as well with 4,500 people trained to answer questions--1,000 more than last year.