The Importance of Accurate Tax Information for New Hires: Common Problems Globally

Throughout the world, onboarding employees with proper country-specific tax forms is crucial to prevent problems down the line. For example, if you fail to file proper forms, employees may end up paying too much on taxes throughout the year or not enough.

Errors to Avoid

U.S.
In America, failing to fill and file a W-4 will result in the employee being treated as single person without any other adjustments. As a result, the tax filer will only be able to benefit from a single filer standard deduction, regardless of whether they are head of household, married, or filing jointly.

Also, in the U.S., independent contractors who get paid via a 1099 form can be assessed a backup withholding tax by the IRS (currently a 24% rate) for failing to provide an accurate tax identification number. A fully-filled W-9 form can reduce the risk for this tax assessment.

UK
In the United Kingdom, the default tax code is an “emergency tax code” if the employee does not provide a P45 or a new starter checklist for PAYE. The default tax code does not allow an employee to benefit from adequate tax relief, and this may result in over withholding of PAYE.

Ireland
The same thing can happen in Ireland. If the employee fails to register with Revenue Tax Authority, the employee could be assigned a default high tax status.

Australia
In Australia, failing to provide a tax file number (TFN) within 14 days of employment may result in the employer withholding tax at a high rate of up to 47% for resident and 45% for nonresident. The Australian tax office may offer exceptions to pending TFN applications or if a valid exemption exists.

Life Changes
If an employee has a middle of the year life change, for example—maybe they got married—a new form can typically be filled out at any time.

In fact, in Ireland, an employee can go online and independently update his or her tax information.

Errors to Forms
If you or an employee enter incorrect information on form, issues could arise, including tax liabilities. For example, in the U.S., if an employee’s taxes are under withheld, the IRS will make sure to get the funds, with the responsibility eventually falling on either the employee or the employer.

This can often get messy, as when the employee is held responsible for the error, the IRS may assess a penalty against the employee. Next, the employee could report the employer and claim the employer is at fault for failing to withhold taxes. It is likely in these cases that the IRS will side with the employee.

If the IRS feels the employee has not been withholding adequately, it may issue a “lock-in letter”. This letter is a directive to the employer and the employee as to what amount of taxes need to be withheld moving forward.

Avoiding Errors
The easiest way to avoid errors is to have audits in place. Make sure all forms are audited before and after they are put into the payroll system. You can implement a program to continue to verify all employees each quarter.

We hope you found these examples informative and helpful. Want to learn more? Or have a thought/question/idea? Log in to our People & Payroll private platform to join our exclusive discussion.

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