SB/SE Payroll Tax Issue Committee Meeting Minutes

May 6, 2004
3PM EST

Attendance

• Jim Abraham
• Clayton Agena
• Charlotte Cassady
• Theodore Perros
• Charles Silva
• Leonard Steinberg
• Frank Woods

Not in Attendance

• Maria Hermann
• David Meyer
• Steve Wood

Staff

• Mary Ann Delzer, Program Analyst
• Margie Kinney, Program Owner
• Judi Nicholas, TAP Manager and Designated Federal Official
• Mary Peterson O'Brien, Program Analyst

Guests

• David Cain, Chair Area 4 Subcommittee
• Dan Drummel
• Dick Greenburg
• Sharon Lassar
• Dick Murphy
• Theresa Smedely

Roll Call
Mary took the roll and 6 members present. The requirements for a quorum were met.

Welcome
Leonard welcomed everyone and reviewed the agenda. The agenda will proceed as scheduled.

Review/Approve Minutes
Not everyone received minutes; therefore, they will be approved at the next subcommittee meeting.

Welcome new W4 employee subcommittee members

Updates from Program Owner
Margie gave a background on what the IRS is currently doing related to Form W4 and withholding. The IRS has a program where the employer is responsible to submit an employee’s Form W4 to the IRS when an employee completes a Form W4 that is considered questionable. The criteria is when the employee claims more than 10 exemptions or when the employee claims exempt from withholding. That program was started in 1980. The IRS, Treasury Inspector General (TIGTA) and the Government Accounting Office (GAO) are currently looking into this program. Early assessments are that the process needs to be modernized. The withholding tables don’t work as well as they should. The criteria are not indicative of compliance. The IRS is concerned about noncompliance. Data shows that when people don’t have enough withholding taken out, compliance for filing is affected. There are a significant number of employees who do not provide correct social security numbers or names. There is a significant problem on the employee side in understanding how to withhold.

Another agency affected by Form W4 reporting is the Health and Human Services. Since the 1995 Welfare and Reform act, when an employer hires a new employee, that Form W4 has to be filed with the state Child Support Agency. This is then rolled up to the “New Hire Database”. The IRS does not currently have access to this database due to disclosure laws.

At the employer level, you have two different requirements to report Form W4 with different agencies. There causes a significant burden to the employer. Another problem is the erroneous name and Taxpayer Identification Number matches.

Agencies that have a burden regarding Form W4:

IRS: If we are not getting the taxes that need to be collected.

Social Security: If they get incorrect taxpayer information, they cannot correctly post those taxes that were collected to the person’s account so that the correct taxpayer qualifies for benefits.

Health and Human Services: For child support purposes, if the taxpayer numbers are not accurate, it creates problems.

Margie asked the committee to look at Form W4 issues from two perspectives, Employee and Employer perspectives. Margie discussed the problems and challenges she sees with the withholding tables and forms. Margie discussed the employer issues. The issues included instructions on when and how to send them in and the overlap between the effected agencies.

Margie discussed the compliance issue of withholding. If the proper amount of withholding was held, 76% of the current balance due returns would be paid. This would result in substantial savings in resources that are dedicated to collection of tax. The problem is not so much with withholding associated with wages rather it is the withholding from income such as interest, dividends, pensions, etc. While employee can opt to have additional monies withheld from wages to cover these, the IRS cannot mandate that a person do so.

Action Item: Margie asked the group to think about changing this regulation and the impact and benefits it would have and make recommendations and/or give Margie the committee’s thoughts.

Committee Business
It was decided to schedule a subcommittee meeting via teleconference for the expanded Form W4 employee meeting on June 1st at 3pm Eastern Time. The kickoff for the discussion will be the report prepared by Jim Abraham.

Finalized Recommendations: Subcommittee meetings were scheduled to work on the final recommendations.

Action Item: Mary will email Jim’s report to everyone.

Subcommittee Report Out

Conclusion
Next meeting will be June 3, 2004. Leonard adjourned the meeting.