Treasury official: Tax withholding guidance wasn’t manipulated for political reasons

A Treasury Department official is pushing back on Democrats’ arguments that IRS guidance about tax withholdings from people’s paychecks was manipulated for political purposes, calling the claims “misinformed, baseless, and false.”

“There was absolutely no manipulation of the tables and no ‘phantom windfall’ in taxpayers’ paychecks,” J. Brady Howell, a senior adviser in Treasury’s legislative affairs office, said in a letter this week to Senate Democrats.

The Treasury Department and the IRS released new withholding tables early last year to reflect the major changes in President Trump’s tax-cut law, such as the lower tax rates and the increase in the standard deduction.{mosads}

Treasury has estimated that 21 percent of wage earners will owe the IRS money when they file their taxes this year under the guidance, because they didn’t have enough withheld from their paychecks, compared to 18 percent if the new tax law hadn’t been enacted, according to a Government Accountability Office (GAO) report.

A debate between Democrats and the Trump administration over the guidance has been renewed in recent weeks because early IRS statistics have found a decline in the average refund amount. Most taxpayers are getting a tax cut for 2018, even if their refund declined or they have to pay the IRS money when they file their taxes, but people often count on receiving a refund to pay off debt or make major purchases.

Democrats have argued that the administration designed the withholding guidance so that people would see bigger paychecks throughout the year last year ahead of the 2018 midterm elections, but that taxpayers then would find that they owe the IRS money instead of receiving a refund when they file their taxes this year. They argue that the administration should have not touched the withholding tables last year.

“Because of the Administration’s 2018 withholding manipulation, we believe the American people are unfortunately in store for a surprise pocketbook reckoning that will require millions to pay higher taxes under the new tax law than what they were promised,” a group of Senate Democrats said in a letter to Treasury and the IRS earlier this month.

But Treasury has consistently rejected Democrats’ argument. Howell wrote in his letter that the GAO did not find any evidence that the withholding guidance was improperly manipulated, and that the guidance is accurate for people with simple tax situations. Additionally, Howell said that it would have been “unfair and inappropriate” if the government hadn’t adjusted the withholding tables after tax rates were cut.

The IRS announced earlier this year that it will waive penalties for some taxpayers who underpaid their taxes throughout the year, and Senate Democrats in their letter had asked Treasury and the IRS to waive penalties for even more people. Howell in his letter noted the waiver guidance that the IRS has already put out, but did not say that Treasury would further expand the number of people who would be eligible for penalty waivers.

The top Democrat on the Senate Finance Committee, Sen. Ron Wyden (Ore.), expressed frustration that Treasury didn’t announce further steps to waive penalties.

“Let’s call it what it is, this is tax penalty entrapment,” Wyden said in a statement Tuesday. “First the Trump administration chose to under-withhold taxes from millions more Americans than is typical, and now the administration could sock a whole lot of unsuspecting people with penalty fees for underpayment.”