IRS Stresses Importance of Payroll-Industry Input on Compliance

The reliance on payroll-industry experts to offer insight on compliance was critical to developing comprehensive guidance issued by the Internal Revenue Service on the revised Form W-4 and pandemic-related legislation, an agency director said March 16.

The coronavirus pandemic has forced the IRS to approach its relationship with the payroll community in ways that were not contemplated two years ago, said Melvin Hardy, director of the IRS’s National Public Liaison Office. Virtual summits replaced in-person gatherings held by the office, such as quarterly reporting-agent forums, meetings of the Internal Revenue Service Advisory Council and the Electronic Tax Administration Advisory Committee, and the annual tax forums that took place in several U.S. cities during the summer, he said.

Despite the move to a mostly online presence, the goal of the liaison office remains the same: Build and strengthen relationships that promote effective tax administration by creating opportunities for communication and addressing issues that concern the payroll industry, Hardy said.

“It’s so important that we have trusted external partners that are willing to come in and be a part of these advisory committees,” Hardy said during the American Payroll Association’s online Capital Summit, a conference that before 2020 was held annually in Washington. “They are giving the IRS real-time feedback.”

The liaison office counts among its stakeholders the National Association of Enrolled Agents, the National Payroll Consortium, the National Small Business Association, payroll associations, and payroll providers, Hardy said.

Links to these organizations have helped the IRS fine-tune its payroll guidance related to new legislation. For example, reporting agents were invaluable in providing input regarding changes to Form W-4, Employee’s Withholding Certificate, and its instructions, Hardy said. The revisions, which were needed because of the federal tax overhaul (Pub. L. 115-97) that took effect Jan. 1, 2018, marked the start of a new withholding regime that required employers to take into account dollar amounts instead of withholding allowances for new hires and employees changing their withholding.

The range of perspectives from reporting agents on Form W-4 changes was vital because of the breadth of the tax code overhaul, Hardy said, adding the IRS held extensive meetings with trusted partners recommended by the liaison office.

Payroll community input also has been provided to the IRS on pandemic-related issues, such as the employee retention credit, qualified leave, deferred Social Security tax amounts, and updated tax forms, Hardy said.

Recommendations regarding legislative changes are important to formulating IRS guidance, he said.

“I think it is so important to have as many voices literally around the table as possible” and to hear from many organizations when working toward finding answers to solve difficult problems, Hardy said.