It’s tricky to take out the right amount even with just the standard deduction because of how tax brackets work, as they need to know all the income you have earned for the year up until that point along with any taxes paid in (all jobs, interest on a bank account, etc) and then they need to know how much money one will make in the current year (will they get a pay bump, put in some over time, take unpaid time off?). Or if you are going to have a kid or get married that year.
There are also credits that can be taken with the standard deduction like for tuition or say an EV purchase.
I think they could probably get pretty close with most people. And, I think those tax credits would get reported to the government anyway (otherwise how could they verify it). Regardless that part was more of a wish. Just sending me a bill would be a marked improvement.
For the majority of people out there, all their income is going to have digital records. A cash only store still deposits money in a bank, after all. For the people that don’t… chances are their income without a digital footprint isn’t being reported, and is small enough that no one is worried about that in the first place.
If the IRS is being told by a person’s work how much they’re paid, by their bank how much interest they got, by any Etsy-esque services how much they were paid… then the IRS has every bit of information it needs to get automatic withholding correct.
Right now withholding systems default to taking too much money out, because it’s easier for the government to send you money than it is for them to request money from you. It also avoids the headache of most people being hit with surprise IRS bills. The IRS could keep that default, and then as the year goes on it could shift that withholding down until it’s laser close. The negative there is that variability is bad for budgeting too, but with some work they could make it start close enough that it shouldn’t be all that variable.
If the IRS is being told by a person’s work how much they’re paid, by their bank how much interest they got, by any Etsy-esque services how much they were paid… then the IRS has every bit of information it needs to get automatic withholding correct.
Unless you just want to just keep withholding on the marginal tax rate a person is currently in, thus starting your withholding super low in the start of the year and increasing it throughout the year so that come December they have way more withheld per paycheck than in January, it’s not simple.
Future income is unknown, you could maybe design a system a system that assumes you will adjust your withholding amounts especially in the last quarter of the year to either catch up or slow down with holdings to try to best get you close to zero by the end of the year, but even then to be dead on still is a wild bar to clear as that requires that last source of income to know it’s the last income for the year.
It’s tricky to take out the right amount even with just the standard deduction because of how tax brackets work, as they need to know all the income you have earned for the year up until that point along with any taxes paid in (all jobs, interest on a bank account, etc) and then they need to know how much money one will make in the current year (will they get a pay bump, put in some over time, take unpaid time off?). Or if you are going to have a kid or get married that year.
There are also credits that can be taken with the standard deduction like for tuition or say an EV purchase.
I think they could probably get pretty close with most people. And, I think those tax credits would get reported to the government anyway (otherwise how could they verify it). Regardless that part was more of a wish. Just sending me a bill would be a marked improvement.
For the majority of people out there, all their income is going to have digital records. A cash only store still deposits money in a bank, after all. For the people that don’t… chances are their income without a digital footprint isn’t being reported, and is small enough that no one is worried about that in the first place.
If the IRS is being told by a person’s work how much they’re paid, by their bank how much interest they got, by any Etsy-esque services how much they were paid… then the IRS has every bit of information it needs to get automatic withholding correct.
Right now withholding systems default to taking too much money out, because it’s easier for the government to send you money than it is for them to request money from you. It also avoids the headache of most people being hit with surprise IRS bills. The IRS could keep that default, and then as the year goes on it could shift that withholding down until it’s laser close. The negative there is that variability is bad for budgeting too, but with some work they could make it start close enough that it shouldn’t be all that variable.
Unless you just want to just keep withholding on the marginal tax rate a person is currently in, thus starting your withholding super low in the start of the year and increasing it throughout the year so that come December they have way more withheld per paycheck than in January, it’s not simple.
Future income is unknown, you could maybe design a system a system that assumes you will adjust your withholding amounts especially in the last quarter of the year to either catch up or slow down with holdings to try to best get you close to zero by the end of the year, but even then to be dead on still is a wild bar to clear as that requires that last source of income to know it’s the last income for the year.