5 Common Tax Season Challenges for Hourly Workers and How HR Leaders Can Help

Tax season is in full swing. For hourly employees, the pressure to ensure they have all their paperwork and correctly filled forms can be overwhelming. Compassionate employers are stepping in and offering assistance to help employees successfully navigate their taxes. Let’s look at a few ways you can take some of the pain out of this year’s tax season for your workers.

Why it Pays to Help Your Workers Navigate Tax Season

For many people, tax season is the most stressful financial experience of the year. Consider these statistics:

• An individual taxpayer is estimated to spend 13 hours and $240 just to prepare and file an annual tax return.
• Tax season brings 54% of Gen Z workers to tears.

If employers are able to help alleviate employees’ tax-related stress and costs in any way, it will have a far-reaching impact.

Assisting employees with proper filing and answering any questions they might have is an essential part of an HR professional’s role; however, bear in mind that there are limits to what you can do. HR teams can give employees detailed advice on how to fill out tax forms like a W-4, but filling one out for an employee is illegal.

Let’s look at some common employee tax season-related pain points and practical, legal steps you can take to alleviate them:

1. Understanding Tax Deductions and Credits

Challenge

Many workers may not know which deductions and credits they’re eligible for, especially low-income or hourly workers or people just entering the workforce. A number of tax credits are available to certain worker populations, including credits for employees who are disabled, low or moderate-income wage earners, and those providing care for a child or other dependent.

There’s also:

• A saver’s credit for lower-income employees who contribute to a qualified retirement account.
• The earned income tax credit (EITC) that provides tax credits to qualified taxpayers.

HR Solution

HR teams should educate employees on the most common types of tax credits available to help them reduce their overall tax liability. They should also make workers aware of tax-advantaged benefits, including retirement plans, flexible spending accounts (FSAs), health savings accounts (HSAs) and commuter perks that can further reduce their taxable income.

You might also consider offering tax education workshops, giving workers access to tax calculators, or implementing tax filing support programs, including access to trusted tax preparation services that help ensure accuracy.

2. Irregular Income Patterns and Fluctuations

Challenge

Hourly workers often deal with fluctuating incomes, complicating tax withholding and payments. For example, if employees receive cash tips from customers, the tips may constitute taxable wages for payroll tax purposes. This designation subjects employers to additional payroll tax withholding, reporting, and payment requirements. Many employees find it difficult to understand the mechanics of these factors, which only adds to their stress during tax season.

HR Solution

Why not offer your employees tools that help them track their income and budget throughout the year? This will help them accurately estimate their tax liabilities and avoid unpleasant surprises. Mobile apps make it easy for workers to track their income, expenses, mileage, and receipts, and collect and sort tax information throughout the year. Some apps have free versions with limited capabilities, but you’ll probably need to pay to give your workers access to one with more advanced features.

3. Accessing Affordable Tax Services

Challenge

Tax advisors and other tax professionals offer services from preparing and filing annual tax returns to comprehensive tax strategies that help people minimize their taxes. However, professional tax planning services can be expensive and out of reach for many hourly workers. For example, a CPA might charge a flat fee per tax form or schedule filed, which may cost anywhere from $500 to $1,500 or more, depending on the level of complexity.

HR solution

Companies can help by partnering with tax advisors who offer discounted or free tax help tailored to the needs of hourly workers. Or they can offer in-house tax filing assistance as part of their employee benefits package.

4. Filing Errors and Audit Risks

Challenge

Simple mistakes on tax forms can increase the risk of IRS audits, causing workers unnecessary stress and potential financial strain. Some common tax return audit risk factors include:

• Wrong name or Social Security Number.
• Incomplete or missing information.
• Math errors.
• Amended returns.

The IRS classifies most errors as honest mistakes, but that doesn’t mean your workers are off the hook. If an audit reports underreported income, claimed credits they weren’t owed, or otherwise unfulfilled tax obligations, they’ll owe what’s due plus any accrued interest.

HR Solution

As discussed, if your company partners with tax advisors, your workers can connect with professionals who can help ensure their returns are correctly completed. While these advisors aren’t able to file workers’ taxes on their behalf, they can review their paperwork and highlight any errors, which is especially helpful if someone has a complex income situation.

5. Coping with Delayed Tax Refunds

Challenge

Tax season is one of the most stressful times of the year for workers, but it also represents one of the most significant financial windfalls they might receive. Unfortunately, millions of American workers continue to grapple with IRS delays, which prevent them from getting their tax refunds promptly. Delays in receiving funds can disrupt the financial stability of hourly workers who rely on timely refunds.

HR Solution

HR leaders should educate employees on best practices for prompt refund processing, like opting for electronic filing and direct deposit. The IRS advises taxpayers to use electronic filing methods like IRS Free File or alternative e-file service providers. Taxpayers have the option to request direct deposit of a federal refund into one, two, or even three accounts. It’s vital for employees to provide the correct banking information if they’re expecting a refund. Ensuring routing and account numbers provided for direct deposit are accurate will avoid delays or misdirected refunds.

Use Tax Season to Start Financial Security Conversations with Your Employees

Conversations about financial resilience need to start somewhere, so why not take advantage of this year’s tax season?

At a minimum, discussing taxes with your employees can lead to conversations about other financial management benefits you offer. It’s an opportunity to engage with your workers and perhaps inspire them to take advantage of other financial support programs you provide as part of your employee benefits program.

Payactiv provides companies with a means to put their employees on a path to financial stability and, ultimately, security. With our budgeting, saving, and debt support tools—all in the Payactiv app—your workers are empowered to control their financial futures.

Interested in learning more about Payactiv’s service? Book your demo now.

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