Billions of Interest-Free Loans to the IRS through Filing Incorrectly on Form W-4

Joel Barker, Albert Duncan


Form W-4 was created by the IRS to provide tax withholding guidelines to employers. The form informs employers of employees’ filing status and the number of allowances each is eligible to claim. However, because of various factors, taxpayers unintentionally create interest-free loans to the IRS. Some of these factors include intentional and unintentional incorrect completion of Form W-4. Lack of education, knowledge, as well as fear of noncompliance have been contributing factors to this growing trend.

These interest-free loans create a one-sided benefit annually for the IRS, thus depriving taxpayers of the alternative use of such funds. CPAs and other tax preparers need to play a more proactive role in educating and assisting their clients in combating these interest-free loans to the IRS. Education is the most valuable tool to break the uneven cycle created by this behavior. True, some may continue to fund the coffers of the IRS from an inability to change, but through education, many others may change the way they manage their tax withholdings.

The subject of non-interest-bearing loans to the IRS is not heavily publicized nor discussed outside the financial arena. How does one engage average taxpayers in this discussion? Educating the public is key.

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