Lock In Letter Guidance Updated by IRS

The new Form W-4 just keeps on providing more and more info for us payroll professionals.  We now turn to handling lock-in letters.  The IRS has updated its FAQs to explain how to handle the lock-in letters using the new 2020 Form W-4.  As a quick review on the background of lock-in letters.

If the IRS determines that an employee does not have enough withholding, they will notify the employer to increase the amount of withholding tax by issuing a “lock-in” letter that specifies the withholding arrangement permitted for the employee. The employer will also receive a copy for the employee that identifies the withholding arrangement permitted and the process by which the employee can provide additional information to the IRS for purposes of determining the appropriate withholding arrangement. If the employee still works for for the employer, the employer must furnish the employee copy to the employee. If the employee NO LONGER WORKS for the employer, NO ACTION IS REQUIRED. However, if the employee should return to work within twelve (12) months, the employer should begin withholding income tax from the employee’s wages based on the withholding arrangement stated in this letter. The employee will be given a period of time before the lock-in rate is effective to submit for approval to the IRS a new Form W-4 and a statement supporting the claims made on the Form W-4 that would decrease federal income tax withholding. The employee must send the Form W-4 and statement directly to the IRS office designated on the lock-in letter. The employer must withhold tax in accordance with the lock-in letter as of the date specified in the lock-in letter, unless otherwise notified by the IRS. The employer will be required to take this action no sooner than 60 calendar days after the date of the lock-in letter. Once a lock-in rate is effective, an employer cannot decrease withholding unless approved by the IRS.

The new FAQs include:

  • how to handle revised W-4s after the lock-in letter is received
  • How to handle a modification letter
  • Handling employee self service portals and lock-in letter

The site still includes info on how to handle lock-in letters using the 2019 and prior forms.

 

Last Day for Discount Registration to Upcoming Webinar

Only one day left to register for our upcoming webinar Payroll Lecture Series #101: Handling IRS Forms in 2020 and receive your 10% discount as a subscriber to my blog.  You don’t want to miss this information-packed webinar on the IRS forms for 2020 including the new and improved (?) Form W-4.  Register today and use coupon code VVJECAXH at checkout to receive your discount.

IRS Issues Proposed Regs for Withholding

The U.S. Department of the Treasury and the Internal Revenue Service have issued proposed regulations updating the federal income tax withholding rules to reflect changes made by the Tax Cuts and Jobs Act (TCJA) and other legislation.

In general, the proposed regulations, available now in the Federal Register, are designed to accommodate the redesigned Form W-4, Employee’s Withholding Certificate, to be used starting in 2020, and the related tables and computational procedures in Publication 15-T, Federal Income Tax Withholding Methods. The proposed regulations and related guidance do not require employees to furnish a new Form W-4 solely because of the redesign of the Form W-4.

Employees who have a Form W-4 on file with their employer from years prior to 2020 generally will continue to have their withholding determined based on that form.

To assist with computation of income tax withholding, the redesigned Form W-4 no longer uses an employee’s marital status and withholding allowances, which were tied to the value of the personal exemption. Due to TCJA changes, employees can no longer claim personal exemptions. Instead, income tax withholding using the redesigned Form W-4 will generally be based on the employee’s expected filing status and standard deduction for the year.

The Form W-4 is also redesigned to make it easier for employees with more than one job at the same time or married employees who file jointly with their working spouses to withhold the proper amount of tax.

In addition, employees can choose to have itemized deductions, the child tax credit, and other tax benefits reflected in their withholding for the year. As in the past, employees can choose to have an employer withhold a flat-dollar extra amount each pay period to cover, for example, income they receive from other sources that is not subject to withholding. Under the proposed regulations, employees now also have the option to request that employers withhold additional tax by reporting income from other sources not subject to withholding on the Form W-4.

The proposed regulations permit employees to use the new IRS Tax Withholding Estimator (discussed in our previous blog)  to help them accurately fill out Form W-4. As in the past, taxpayers may use the worksheets in the instructions to Form W-4 and in Publication 505, Tax Withholding and Estimated Tax, to assist them in filling out this form correctly.

The proposed regulations also address a variety of other income tax withholding issues. For example, the proposed regulations provide flexibility in how employees who fail to furnish Forms W-4 should be treated. Starting in 2020, employers must treat new employees who fail to furnish a properly completed Form W-4 as single and withhold using the standard deduction and no other adjustments. Before 2020, employers in this situation were required to withhold as if the employee was single and claiming zero allowances.

In addition, the proposed regulations provide rules on when employees must furnish a new Form W-4 for changed circumstances, update the regulations for the lock-in letter program, and eliminate the combined income tax and FICA (Social Security and Medicare) tax withholding tables.

Treasury and IRS welcome public comment on these proposed regulations. See the proposed regulations for details. Updates on TCJA implementation can be found on the Tax Reform page of IRS.gov.

Discount on Upcoming Webinar for Blog Subscribers

Our first lecture/webinar of 2020 will be held on February 28, 2020. The topic is Handling IRS Forms in 2020.  My blog subscribers will receive a 10% discount if you register before February 21, 2020.  The price of this webinar is $149.  The topics covered include:

  • Completely new and revamped 2020 Form W-4, step by step review
  • 2020 Form W-2, box by box review
  • 2020 Form 941, line by line review
  • How to correct the 941 using the 941X
  • Correcting the Form W-2 with Form W-2c

This lecture will be held on Friday, February 28, 2020 from 10am Pacific to Noon Pacific.  It has been submitted to the APA for 2.0 RCHs.

As with all my lectures, my subscribers will receive a 10% discount by using the coupon code VVJECAXH at checkout.  But you must register before February 21, 2020 to receive the discount.

IRS Tax Estimator Gets Latest Update

The Internal Revenue Service has launched a new and improved Tax Withholding Estimator, designed to help workers target the refund they want by having the right amount of federal income tax taken out of their pay. The Tax Withholding Estimator, now available on IRS.gov, incorporates the changes from the redesigned Form W-4, Employee’s Withholding Certificate, that employees can fill out and give to their employers this year. The IRS urges everyone to see if they need to adjust their withholding by using the Tax Withholding Estimator to perform a Paycheck Checkup. If an adjustment is needed, the Tax Withholding Estimator gives specific recommendations on how to fill out their employer’s online Form W-4 or provides the PDF form with key parts filled out.

To help workers more effectively adjust their withholding, the improved Tax Withholding Estimator features a customized refund slider that allows users to choose the refund amount they prefer from a range of different refund amounts. The exact refund range shown is customized based on the tax information entered by that user. Based on the refund amount selected, the Tax Withholding Estimator will give the worker specific recommendations on how to fill out their W-4. This new feature allows users who seek either larger refunds at the end of the year or more money on their paychecks throughout the year to have just the right amount withheld to meet their preference.

The new Tax Withholding Estimator also features several other enhancements, including one allowing anyone who expects to receive a bonus to indicate whether tax will be withheld. In addition, improvements added last summer continue to be available, including mobile-friendly design, handling of pension income, Social Security benefits and self-employment tax.

Starting in 2020, income tax withholding is no longer based on an employee’s marital status and withholding allowances, tied to the value of the personal exemption. Instead, income tax withholding is generally based on the worker’s expected filing status and standard deduction for the year. In addition, workers can choose to have itemized deductions, the Child Tax Credit and other tax benefits reflected in their withholding for the year. It is important for people with more than one job at a time (including families in which both spouses work) to adjust their withholding to avoid having too little withheld. Using the Tax Withholding Estimator is the most accurate way to do this.

As in the past, employees can also choose to have an employer withhold an additional flat-dollar amount each pay period to cover, for example, income they receive from the gig economy, self-employment, or other sources that is not subject to withholding. For more information about the updated Tax Withholding Estimator and the redesigned 2020 Form W-4, visit IRS.gov.

Keep up on all the latest payroll news for 2020.  Subscribe to Payroll 24/7 today.  Only $149 per year to keep totally informed.  What a Deal!!

 

Our new payroll lecture series for 2020 is here.  Our first lecture is on IRS forms for 2020, including Forms 941, W-2 and W-4.  It will be held on Friday, February 28, 2020 from 10am Pacific to Noon Pacific.  Cost is only $149 for this 2-hour lecture, which has been submitted to the APA for 2 RCHs.  My blog subscribers receive a 10% discount if you register before February 21st. Use coupon code VVJECAXH at checkout to receive your discount. 

Reminder: Register Now for Our Ringing in the New Year Webinar

I want to remind every one of my followers that the early bird pricing for my latest webinar will end on December 3rd.   This lecture will focus on just the new year.  So I am calling it “Ringing in the New Year–2020”.  For only $149 I will cover all the latest for 2020.  This includes:

  • Completely new and revamped 2020 Form W-4
  • New DOL exempt rules
  • Minimum wage increases on the state level
  • New and upcoming sick leave and/or paid leave programs going into effect
  • 2020 Form W-2
  • 2020 Form 941
  • 2020 Form 1099-NEC

This different approach allows me to concentrate on the upcoming year and saves your time by not having to review information you may already know or will receive from other sources.

Our price for this information packed lecture is only $149. Click here to register.  Subscribers to Payroll 24/7 will receive a 20% discount if they register by Tuesday, December 3, 2019.  Not a subscriber to Payroll 24/7?  Try us out with your registration. If you register prior to Tuesday, December 3, 2019 you will receive a free 60-day subscription to this valuable payroll news service.

This lecture has been submitted to APA for 1.5 RCH credits.

Wage and Hour Laws–They are Here, There and Everywhere Part 4

In my first blog in this series, October 23, 2019, I started discussing the complexities of compliance with wage and hour laws.  Which apply…federal or state?  What areas are covered?  When these questions do arise, where do you find the answers? Can a payroll professional simply check the Fair Labor Standards Act (FLSA) to find the answer with a quick verification of any state requirement? Or is the state the main source to go to first with the FLSA as the fall back? The answer is not simple.  In this blog series I will be discussing 23 areas where payroll professionals need to ensure compliance by researching wage and hour laws. In Part 2, I covered the first six areas. In Part 3 I discussed the next four areas.  This time I am reviewing the next set of four areas that may require research to ensure compliance: which includes posting requirements, frequency of payments, methods of payments, and termination requirements.

11. Posting Requirements
Many states have posting requirements in addition to the ones required by the FLSA.  The state may have its own minimum wage poster.  It may require a payday notice or copies of the wage and hour laws be posted or given directly to the employee. State with payday notice regulations include California, Montana, Minnesota, Texas, Tennessee and New York For those states who have them, including California, Connecticut, Colorado, Massachusetts, New Jersey, and New York, wage orders are usually required to be posted as well.

 

 

12. Frequency of Payments
Federal laws do not specify when an employee must be paid, only that they must. However, most states have a requirement that not only must employees be paid but that they must be within a certain frequency, such as semi-monthly or weekly.  Arizona requires that the employer designate two or more days in each month to pay employees and the days cannot be more than 16 days apart.  New York bases its requirements on whether the employee is a manual worker, a clerical worker or other type of worker. Most states require either biweekly or semimonthly paydays.  These include California, Illinois and New Mexico. Other states permit monthly payrolls including Alaska, Delaware and Washington. Be sure when researching to also check into the amount of time permitted between closing the payroll (collecting the timesheets) and paying the employees.  States do have requirements on what can be called “payroll processing time” or “lag time”.

13. Method of Payment
There is no requirement under the FLSA as to the method to pay an employee. Almost all the states do address this issue. The common requirement is the employee be paid by U.S. currency or check.  The federal government does regulate the paying of employees via direct deposit under the Electronic Funds Transfer Act. The Act was recently updated to include the newest method of payment of employees—payroll debit cards. The states are updating their regulations for payroll debit cards.  The payroll professional must determine if the state allows this form of payment if it intends to begin a pay card payment program and what restrictions may be in place.  These restrictions include limiting fees and voluntary participation.

14. Termination Requirements

Again the FLSA is silent when it comes to requirements on paying an employee who terminates.  States that address this issue vary greatly. For some states it can even depend on whether or not the employee quit or was discharged.  For example, if an employee is discharge Colorado requires that the employee be paid immediately.  But if the employee quits the check is due on the next regular payday. As to whether or not vacation pay must be included with the final paycheck will be discussed in the next segment of this blog.

 

In Part 5 I will be covering the next four areas that may require research including vacation pay requirements, compensatory time off, reporting time or show up pay and call back pay.

Wage and Hour Laws–They Are Here, There and Everywhere Part 3

In my previous blog, October 23, 2019, I discussed the complexities of compliance with wage and hour laws.  Which apply…federal or state?  What areas are covered?  When these questions do arise, where do you find the answers? Can a payroll professional simply check the Fair Labor Standards Act (FLSA) to find the answer with a quick verification of any state requirement? Or is the state the main source to go to first with the FLSA as the fall back? The answer is not simple.  In this blog series I will be discussing areas where payroll professionals need to ensure compliance by researching wage and hour laws. In Part 2, I covered the first six areas. This time I am reviewing the next set of four areas that may require research to ensure compliance: which includes on call or stand by pay, providing holiday/sick/vacation benefits, statements and payday notices and what is hours worked.

7. Hours Worked-General

The definition of hours worked under the FLSA was is quite broad. By statutory definition the term “employ” includes “to suffer or permit to work.” The workweek ordinarily includes all time during which an employee is necessarily required to be on the employer’s premises, on duty or at a prescribed workplace. What is the state’s definition on what is an hour worked?  Most follow the FLSA. The difficult task is applying the rules to a specific type of hour. One example that comes up frequently is travel time.  If an employee travels for business is it hours worked?  Can a different wage be paid to employee traveling?  If a nonexempt employee travels out of town on business overnight is the entire time considered hours worked including sleeping or just the employee’s normal day?  Compliance here requires that each type of “hour worked” an employee performs must be researched to determine the proper payment.

8. On Call or Stand by Pay

The FLSA and court cases address the issue of on call pay on the federal level.  An employee who is required to remain on call on the employer’s premises is working while “on call.” An employee who is required to remain on call at home, or who is allowed to leave a message where he/she can be reached, is not working (in most cases) while on call. Additional constraints on the employee’s freedom could require this time to be compensated. However, the states may view it differently.  In most states the degree of control the employer has over the employee’s time and whether the employee is free to use his or her time for his or her own purposes is the guiding factor in whether or not the time is compensable.

9. Holiday/Sick Leave/Vacation Pay

The federal government does not require an employer to provide benefits such as these to the employee and does not count them towards hours worked for overtime.  But the state, county or even city could have a different rule in that area. More and more states or local governments are now requiring paid sick leave or paid leave.  The most recent is Nevada. Massachusetts and Rhode Island both have rules concerning mandated holidays. However, none require that it be included in regular rate of pay.

10.Statements and Payday Notices

The FLSA does not require that an employee be given any type of notification upon hire or when being paid.  But the states generally do have such requirements. These requirements could include giving the employee or posting certain notices regarding benefits and wages.  It may require that the date and time of distribution of paychecks be posted.  One common requirement in 42 states is the employee receive a statement or “paystub” with each payment explaining the breakdown of the check. This statement requirement may be as simple as listing only the deductions made from the check as in Idaho or listing everything including the gross to net wages and all rates and dates. The latest area of compliance concern for payroll is providing electronic pay stubs. Most states with this regulation require a written pay stub to be provided and have not yet allowed “written” to be by electronic means.

 

In Part 4 I will be covering the next four areas that may require research including posting requirements, frequency of payments, methods of payments, and termination requirements.

Our subscribers to Payroll 24/7 E-Alert received the news of the 2020 wage base the same day it was released by the SSA. Don’t wait for important payroll news, subscribe today for only $149 per year.  That’s hundreds of dollars less than our nearest competitor.  And our news is strictly payroll related. 

Reminder:  The early pricing for our next payroll lecture ends on December 3rd.  Register for our lecture on the Ringing in the New Year.  If you are a current Payroll 24/7 subscriber you will receive a 20% discount (use coupon code NY20%).  If you are not a Payroll 24/7 current subscriber you will receive a 60-day free subscription to Payroll 24/7.  A $37 value free with your registration.  And just in time for all the latest year end news.

Ring in the New Year with The Payroll Advisor

Each year payroll professionals attend year end webinars or live events to get the latest news on how to close out the old year and begin the new one.  This year I am offering something a little different than “year end”.   My next lecture will focus on just the new year.  So I am calling it “Ringing in the New Year–2020”.  In this 90-minute lecture I will cover all the latest for 2020.  This includes:

  • Completely new and revamped 2020 Form W-4
  • New DOL exempt rules
  • Minimum wage increases on the state level
  • New and upcoming sick leave and/or paid leave programs going into effect
  • 2020 Form W-2
  • 2020 Form 941
  • 2020 Form 1099-NEC

This different approach allows me to concentrate on the upcoming year and saves your time by not having to review information you may already know or will receive from other sources.

Our price for this information packed lecture is only $149. Click here to register.  Subscribers to Payroll 24/7 will receive a 20% discount if they register by Tuesday, December 3, 2019.  Not a subscriber to Payroll 24/7?  Try us out with your registration. If you register prior to Tuesday, December 3, 2019 you will receive a free 60-day subscription to this valuable payroll news service.

This lecture has been submitted to APA for 1.5 RCH credits.

Wage and Hour Laws–They Are Here, There and Everywhere Part 2

In my previous blog, October 23, 2019, I discussed the complexities of compliance with wage and hour laws.  Which apply…federal or state?  What areas are covered?  When these questions do arise, where do you find the answers? Can a payroll professional simply check the Fair Labor Standards Act (FLSA) to find the answer with a quick verification of any state requirement? Or is the state the main source to go to first with the FLSA as the fall back? The answer is not simple.  In this blog series I will be discussing areas where payroll professionals need to ensure compliance by researching wage and hour laws. Today I am reviewing the first six areas that may require research to ensure compliance:  White collar exemptions; minimum wage; tip credit; meals and lodging credits; overtime rules and regulations; and regular rate of pay.

White Collar Exemptions
The FLSA does address this issue in great detail. The question here is whether or not the state follows suit. Does the state follow the same regulations for determining if an employee is exempt from minimum wage and overtime regulations? This is especially important since the federal rules are being revamped and implemented as of January 1, 2020 for the first time since 2004. Since the increase under President Obama was stopped by the courts, this will be the first official change. The states have not had time to catch up to these new regulations but should address this issue in 2020 as the legislatures start meeting. So far, states that differ from the FLSA include Alaska, California, Hawaii and Montana.

Minimum Wage
The FLSA has a standard. However since the states were the first to introduce the concept of a minimum wage (Massachusetts circa 1912) and the federal rate has rarely kept up with inflation (the last update was 10 years ago) this is an area where payroll sees the biggest difference between the FLSA and the states. 29 states have a higher minimum wage than the federal, 14 states are equal to the $7.25, 2 states are lower, and 5 states have no minimum wage provisions.

Tip Credit

The FLSA allows for tip credit against minimum wage for certain employees. The state requirements can range from forbidding tip credit as in CA and NV to matching the federal to anywhere in between.  It is important to verify the definition of a tipped employee including the dollar limits if any and the percentage or dollar amount permitted for the credit.

 

Meals and Lodging Credit

The FLSA allows for a meals and lodging credit against minimum wage for certain employees.  But it is a general rule stating that the fair market value can be deducted.  Many states do allow a meal and/or lodging credit, but they may specify the exact amount that may be taken. California (see chart below) and New Hampshire are two states that specify the exact amounts that may be taken for the credit. It is important to verify if the state allows the credit and then the regulations on which employees employers are permitted to use the credit and the amounts permitted.

Overtime Rules and Regulations
Again the FLSA rules on this are well known.  But a state may have its own method or regulations concerning the calculation of overtime.  Alaska, California, Colorado and Nevada are four states that have a daily overtime requirement.  Kentucky requires overtime for the 7th day worked.

Regular Rate of Pay

 

Regular rate of pay is the calculated rate that is used to pay overtime under the FLSA.  It can be affected by such payments as nondiscretionary bonuses and commissions.  The state could require a different definition. In this area, most states are less strict than the FLSA. An example is Arizona which requires that the minimum wage of the state be considered the regular rate of pay.

 

In part 3 of this series I will discuss the next 4 areas of research which includes on call or stand by pay, providing holiday/sick/vacation benefits, statements and payday notices and what is hours worked.