Tax Policy and Administration:

Reliability of Information on Taxpayers Claiming Many Withholding Allowances or Exemption from Federal Income Tax Withholding

GAO-03-913R: Published: Sep 15, 2003. Publicly Released: Sep 15, 2003.

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When taxpayers claim more withholding allowances than they are entitled to or improperly claim exemption from withholding, either no tax or too little tax is withheld from their wages. As a result, some taxpayers end up owing the Internal Revenue Service (IRS) additional taxes, and if the taxes are not paid on time, they become delinquent. This report responds to a Congressional request for information on these taxpayers. Specifically, we provided information on (1) how many taxpayers claimed more than 10 allowances for federal income tax withholding purposes and (2) how many taxpayers claimed exemption from federal income tax withholding and, of those taxpayers, what proportion did not file federal income tax returns and had invalid Social Security numbers.

We have two concerns about the information that IRS maintains on taxpayers who claimed more than 10 withholding allowances or exemption from federal tax withholding that preclude us from using it to answer Congressional questions. First, we are concerned about the completeness of the information because a significant number of employers may not send IRS the required forms. Second, some of the information may not be current--it may not reflect the current withholding status of some taxpayers. While acknowledging the limits of the information, IRS officials told us that the information is useful for tax compliance purposes. Also, the officials said that IRS has efforts under way intended to influence employers to comply with the reporting requirement.

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