- Anticipate tax filing questions and concerns. Given recent adjustments to income brackets by the IRS as well as an expiration of pandemic tax credits, employees could be surprised by their federal and state taxes owed from 2022.
- Listen and show empathy. Employees caught off guard by their amount owed could point the finger toward their employer. The best response is to show empathy by listening and then providing relevant resources for both the short-term and long-term.
- Educate in other ways. Providing upfront education about filling out tax forms, when to update withholdings, and how to effectively use retirement vehicles like 401(k)’s and HSAs can set employees up for a better experience during tax filing season.
- Stay proactive. The employee onboarding experience should provide education on how to accurately fill out a W-4 and there should be various touchpoints throughout the year to ensure employees are withholding enough on their paychecks.
Fewer deductions and credits and smaller tax refunds are expected this tax season, which could be a recipe for added financial stress among employees amid an uncertain economic climate.
While the Internal Revenue Service (IRS) made inflation adjustments, 2023 is still set to be “another year for the record books in terms of tax complexity and tax refund volatility,” said Mark Steber, chief tax information officer at Jackson Hewitt.
It behooves employers to ensure they are providing their employees with resources to consult when filing taxes and communicating them throughout the year to avoid contentious encounters now and in the future.
When the Damage Is Done
Employers confronted with disgruntled employees during this time of year have no immediate recourse that will change the employee’s situation, but there are ways to mitigate the damage in the short-term, said Andrew Latham, content director at SuperMoney and a Certified Financial Planner.
The best strategy is to listen to employee concerns and frustrations while providing “clear and transparent communication,” he said.
“Then, offer resources and support to help employees manage any unexpected tax bills,” Latham said. “When you have the education resources, make them available to help employees avoid having similar issues in the future.”
Sandy Shurin, principal at Deloitte Tax LLP, advocated for a proactive approach such as contacting the organization’s tax advisor in preparation for employee questions and concerns.
“Ask your tax advisor what frequent questions can be expected and form strategies for the best responses,” he said. “Then you can leave the tough questions for your tax advisor to answer.”
Employer Support for 2023
For some employees, the damage is done for this tax season, but employers can ensure better outcomes for 2023 taxes by helping employees identify and implement changes on their W-4
MJ Goss, vice president at OneDigital Retirement + Wealth, said employers should remain vigilant throughout the year in reminding employees when it’s essential to update their W-4 and facilitating a conversation with a tax professional if the benefit is offered by the employer.
Goss recommends telling employees they should adjust it based on major life changes such as marriage, divorce or having children.
“This will allow for not only any appropriate tax impact but, in some cases, actually creating more take-home pay,” he said. “That will then give them the opportunity to defer more to tax-favored vehicles like a 401k or HSA (health savings account).”
Goss also suggests providing education about the HSA, which doubles as an avenue for reducing current taxable income.
“Employers can speak directly to how much an employee can contribute and promote any employer contribution,” he said. “Details around when and how an employee can invest assets in these accounts are also crucial in helping employees maximize their benefits.”
Shurin said employers should increase individualized education regarding how employees are taxed based on their income levels.
“This can help manage expectations better, especially if employees receive anything beyond base pay,” he said. “When employees receive bonuses and other supplemental benefits, offering additional education can help them not be caught by surprise regarding what’s taxable and what’s not.”
Latham of SuperMoney said employers should make sure their onboarding experience includes relevant tax filing information for new employees.
“Be clear with your onboarding materials and training to ensure new hires understand how much should be taken out of their paycheck to avoid a large tax bill,” Latham said.
Additionally, Latham said employers should conduct regular touchpoints with employees throughout the year to ensure they’re aware of any changes to tax withholding requirements or guidelines and to offer opportunities to meet with a tax advisor or specialist as part of the employee benefits package.
“Studies [by the National Bureau of Economic Research] even show communication about tax withholdings can significantly reduce the number of employees who owe taxes at the end of the year,” he said.
The final touchpoint should come when employees receive their W2 forms, Goss said.
“This is the best time to make an impact and plant the seeds of best practices for the coming years,” he said. “This allows them to see how their adjustments make a meaningful impact.”
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