IRS Launches New Tool for Estimating Taxes

The Internal Revenue Service has launched the new Tax Withholding Estimator, an expanded, mobile-friendly online tool designed to make it easier for everyone to have the right amount of tax withheld during the year. The Tax Withholding Estimator replaces the Withholding Calculator, which offered workers a convenient online method for checking their withholding. The new Tax Withholding Estimator offers workers, as well as retirees, self-employed individuals and other taxpayers, a more user-friendly step-by-step tool for effectively tailoring the amount of income tax they have withheld from wages and pension payments.

“The new estimator takes a new approach and makes it easier for taxpayers to review their withholding,” said IRS Commissioner Chuck Rettig. “This is part of an ongoing effort by the IRS to improve quality services as we continue to pursue modernization and enhancements of our taxpayer relationships.” The IRS took the feedback and concerns of taxpayers and tax professionals to develop the Tax Withholding Estimator, which offers a variety of new user-friendly features including:

  • Plain language throughout the tool to improve comprehension.
  • The ability to more effectively target at the time of filing either a tax due amount close to zero or a refund amount.
  • A new progress tracker to help users see how much more information they need to input.
  • The ability to move back and forth through the steps, correct previous entries and skip questions that don’t apply.
  • Enhanced tips and links to help the user quickly determine if they qualify for various tax credits and deductions.
  • Self-employment tax for a user who has self-employment income in addition to wages or pensions.
  • Automatic calculation of the taxable portion of any Social Security benefits.
  • A mobile-friendly design.

In addition, the new Tax Withholding Estimator makes it easier to enter wages and withholding for each job held by the taxpayer and their spouse, as well as separately entering pensions and other sources of income. At the end of the process, the tool makes specific withholding recommendations for each job and each spouse and clearly explains what the taxpayer should do next.

The new Tax Withholding Estimator will help anyone doing tax planning for the last few months of 2019. Like last year, the IRS urges everyone to do a Paycheck Checkup and review their withholding for 2019. This is especially important for anyone who faced an unexpected tax bill or a penalty when they filed this year. It’s also an important step for those who made withholding adjustments in 2018 or had a major life change.

Those most at risk of having too little tax withheld include those who itemized in the past but now take the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income and those with complex tax situations.

 

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Our First Payroll Lecture is Here

I am offering my first payroll lecture of the year next week on June 18th.  The subject will be travel pay. The lecture is two hours from 10:00 am to Noon Pacific time.  It is approved by the APA for 2 RCHs.  The nominal charge for the webinar is $99.  You can register under our Shop on our website. 

Learning Objectives:

  • Understand the FLSA requirements for paying an employee who travels
  • Comprehend the best practices for tracking and paying for travel pay
  • Understand the IRS requirements for taxing travel pay reimbursements including per diems and accountable plans.

The Social Security Wage Base Projections Are Here!

Every year we, in payroll, wait in anticipation for the social security (OASDI) wage base to be announced. This basically heralds in the year end/year beginning processing time.  But for some, maybe those responsible for employment tax budgets or financial reports, the wage bases for future years is a handy thing to have all at once and not just wait for it at the end of the year. For this reason, the Social Security Administration (SSA) publishes their estimates for the social security wage base each year.  The years 2020-2028 are included in this year’s 2019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds.   The SSA provides three estimates, high, intermediate and low. For example, for 2019, the actual wage base is $132,900. However, the 2018 report projected $132,300 to $136,800.  The following chart lists the projections estimated by SSA (on page 115 of the report) for calendar years 2020 through 2028:

We still have to wait until October or so for the actual 2020 wage base, but the estimates can be useful in predicting future labor costs.

 

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Taxpayer Advocate Annual Report: Payroll is Upfront and Center in this Year’s Recommendations

The Taxpayer Advocate Service is an independent organization within the IRS.  Its purpose is to ensure that every taxpayer is treated fairly and to help taxpayers know and understand their rights.  The current Taxpayer Advocate is Nina Olson.  Each year the National Taxpayer Advocate (NTA) releases their Annual Report to Congress.  This report describes the challenges the IRS is facing. Federal law requires that the NTA’s annual report identify at least 20 of the most serious problems encountered by taxpayers and to make administrative and legislative recommendations to mitigate those problems. The following are the highlights of this year’s recommendations that affect payroll:

  1. Alternative to Form W-4: The report recommends scraping the Form W-4 altogether and analyzing the feasibility of adopting an IRS-determined withholding code. This approach is currently being utilized in the U.S. tax administration.  It also recommends that withholding be expanded at the source to encompass not only wages, but taxable interest, pensions, dividends, capital gains, IRS income, unemployment and even, potentially, certain earnings as an independent contractor.
  2. Furnishing Information Returns Electronically: Information return data to taxpayers should be furnished electronically for direct importation into tax return preparation software or to authorized tax return preparers.
  3. Lower Electronic Filing Thresholds: The report recommends requiring employers with more than five employees to file Forms W-2 electronically.
  4. Form 941 Filing: Recommends requiring Form 941 contain information about each employee’s name, address and social security number. To promote electronic filing, direct the IRS to use the fillable form currently on the IRS website and reformat so the form can be electronically filed, at no cost, directly from the website.
  5. Effects of the new tax law and the shutdown on overall IRS workloads: With all of the new tax forms needed to incorporate the changes to the tax code the IRS was overwhelmed. Add to this the shutdown and the antiquated systems (IRS has two of the oldest IT systems in the federal government) and you have a recipe for potential disaster. Because of these issues the IRS is now having to process more than five million pieces of mail and over 87,000 amended returns. All manually. IT modernization was the number one recommendation in this report.

Whether or not the recommendations are implemented is anybody’s guess.  But as the situation is becoming more intense at the IRS for meeting deadlines and handling the workload with antiquated systems it will be well remembered to monitor this report for any upcoming legislative changes.  Especially in the area of electronic filing, lowering thresholds and replacing the Form W-4.

Reminder: Keep up with the payroll news by subscribing to Vicki’s e-news alerts, Payroll 24/7.  The latest payroll news when you need it, right to your inbox.

Paycheck Checkup May be Needed

The Tax Cuts and Jobs Act made significant changes to the tax law, including increasing the standard deduction, eliminating personal exemptions, increasing the child care tax credit, limiting or discontinuing certain deductions and changing the tax rates and brackets.  While these changes did not affect the 2017 tax returns they will affect the 2018 tax returns filed next year.  For this reason the IRS is continuing to push a “paycheck checkup” for all employees but especially seasonal or part-time employees. To assist employees the IRS unveiled several new features to help people navigate the issues affecting withholding in their paychecks. The effort includes a new series of plain language Tax Tips, a YouTube video series and other special efforts to help people understand the importance of checking their withholding as soon as possible including a withholding calculator.

Employees can use the Withholding Calculator to estimate their 2018 income tax. The Withholding Calculator compares that estimate to the employee’s current tax withholding and can help them decide if they need to change their withholding with their employer.  When using the calculator, it’s helpful to have a completed 2017 tax return available. Employees who need to adjust their withholding will need to submit a new Form W-4, Employee’s Withholding Allowance Certificate, to their employer. If an employee needs to adjust their withholding, doing so as quickly as possible means there’s more time for tax withholding to take place evenly during the rest of the year. But waiting until later in the year means there are fewer pay periods to make the tax changes – which could have a bigger impact on each paycheck.

Among the groups who should check their withholding are:

  • Two-income families.
  • People working two or more jobs or who only work for part of the year.
  • People with children who claim credits such as the Child Tax Credit.
  • People with older dependents, including children age 17 or older.
  • People who itemized deductions in 2017.
  • People with high incomes and more complex tax returns.
  • People with large tax refunds or large tax bills for 2017.

The Bad Guys Are Phishing Again!

It appears the bad guys are after our payroll information again.  The IRS, and state tax agencies in Michigan, Colorado, Maryland and Rhode Island are urging all payroll personnel to be wary and to educate themselves about a Form W-2 phishing scam that made victims of hundreds of organizations and thousands of employees in 2017.  I blogged about this last year but it bears repeating with the new W-2 submission deadline looming. Here’s how the scam works: cyber criminals do their homework, identifying chief operating officers, school executives or others in positions of authority. Using a technique known as business email compromise (BEC) or business email spoofing (BES), fraudsters posing as executives send emails to payroll personnel requesting copies of Forms W-2 for all employees. The bad guys are using the information to file fraudulent tax returns, or they are posted for sale on the Dark Net.

The initial email may be a friendly, “hi, are you working today” exchange before the fraudster asked for all W-2 information. In several reported cases, after the fraudsters acquired the workforce information, they immediately follow up that request with a wire transfer. The IRS is hoping that by alerting employers and payroll professionals now it can limit the success of this scam in 2018. They have also created a new process by which employers should report the scams. There are steps the IRS can take to protect employees, but only if the agency is notified immediately by the employers about the theft.

The IRS is also suggesting that employers consider creating a policy to limit the number of employees who have the authority to handle Form W-2 requests and that they require additional verification procedures to validate the actual request before emailing sensitive data such as an employee’s Form W-2.

The IRS has established a special email notification address specifically for employers to report Form W-2 data thefts. Here’s how the Form W-2 scam victims can notify the IRS:

  • Email dataloss@irs.gov to notify the IRS of a Form W-2 data loss and provide contact information as listed below
  • In the subject line, type “W-2 Data Loss” so that the email can be routed properly. Do not attach any employee personal identifiable information data.
  • Include the following:
    • business name
    • business employer identification number (EIN) that is associated with the data loss
    • contact name
    • contact phone number
    • summary of how the data loss occurred
    • volume of employees impacted by the data loss

Businesses and payroll professionals that only receive a suspect email but do not fall victim to the scam should send the full email headers to phishing@irs.gov and use “W-2 Scam” in the subject line. But payroll professionals as well as finance departments should be alert to any unusual request for employee data. Cyber criminals and their scams are constantly evolving.

Not All IRS Guidance is as Good as Gold

Nina Olson is with the Taxpayer Advocate Service (TAS).  This is an independent organization within the IRS that assists taxpayers who are experiencing “troubles” with the IRS in getting issued resolve through the “normal channels”. During recent congressional hearing she was asked what seemed like simple questions concerning the types of IRS guidance taxpayers can rely on.  But the answer was not simple.  She has written a blog; IRS Frequently Asked Questions Can be a Trap for the Unwary on July 26, 2017, that contains excellent information for those of us who need to research tax questions and rely on tax guidance from the IRS.  I recommend reading it to ensure you know what you can and cannot rely on when researching the IRS website for tax guidance.

Tips vs Service Charges: An IRS Reminder

The IRS wants to make sure that employers understand tax ramifications of the various payments that they make to employees or that their employees might receive.  So the IRS has posted a reminder for employers when it comes to tips verses service charges.  The key difference between the two categories affect the taxation for employees as well as the reporting. So-called “automatic gratuities” and any amount imposed on the customer by the employer are service charges, not tips.  Service charges are generally wages, and they are reported to the employee and the IRS in a manner similar to other wages. On the other hand, special rules apply to both employers and employees for reporting tips. Employers should make sure they know the difference and how they report each to the IRS.

What are tips? Tips are discretionary (optional or extra) payments determined by a customer that employees receive from customers. They include:

  • Cash tips received directly from customers.
  • Tips from customers who leave a tip through electronic settlement or payment. This includes a credit card, debit card, gift card, or any other electronic payment method.
  • The value of any noncash tips, such as tickets, or other items of value.
  • Tip amounts received from other employees paid out through tip pools or tip splitting, or other formal or informal tip sharing arrangements.

Four factors are used to determine whether a payment qualifies as a tip. Normally, all four must apply. To be a tip:

  • The payment must be made free from compulsion;
  • The customer must have the unrestricted right to determine the amount;
  • The payment should not be the subject of negotiations or dictated by employer policy; and
  • Generally, the customer has the right to determine who receives the payment.

If any one of these doesn’t apply, the payment is likely a service charge.

What are service charges? Amounts an employer requires a customer to pay are service charges. This is true even if the employer or employee calls the payment a tip or gratuity. Examples of service charges commonly added to a customer’s check include:

  • Large dining party automatic gratuity
  • Banquet event fee
  • Cruise trip package fee
  • Hotel room service charge
  • Bottle service charge (nightclubs, restaurants)

Generally, service charges are reported as non-tip wages paid to the employee. Some employers keep a portion of the service charges. Only the amounts distributed to employees are non-tip wages to those employees.

All cash tips and noncash tips should be included in an employee’s gross income and subject to federal income taxes.ployers are required to retain employee tip reports, withhold income taxes and the employee share of Social Security and Medicare taxes from the wages paid, and withhold income taxes and the employee share of Social Security and Medicare taxes on reported tips from wages (other than tips) or from other funds provided by the employee. In addition, employers are required to pay the employer share of Social Security and Medicare taxes based on the total wages paid to tipped employees as well as the reported tip income.  Employers must report income tax and Social Security and Medicare taxes withheld from their employees’ wages, along with the employer share of Social Security and Medicare taxes, on Form 941, Employer’s Quarterly Federal Tax Return, and deposit these taxes in accordance with federal tax deposit requirements.Tips reported to the employer by the employee must be included in Box 1 (Wages, tips, other compensation), Box 5 (Medicare wages and tips), and Box 7 (Social Security tips) of the employee’s Form W-2, Wage and Tax Statement. Enter the amount of any uncollected social security tax and Medicare tax in Box 12 of Form W-2. See the General Instructions for Forms W-2 and W-3.

Reporting Service Charges: Employers who distribute service charges to employees should treat them the same as regular wages for tax withholding and filing requirements, as provided in Publication 15, Employer’s Tax Guide. Distributed service charges must be included in Box 1 (Wages, tips, other compensation), Box 3 (Social Security wages), and Box 5 (Medicare wages and tips) of the employee’s Form W-2.

Keep up to date with the latest from the IRS on taxation by subscribing to Payroll 24/7 today.

MA Governor Proposes Reinstating “Fair-Share” Assessment

Massachusetts Governor Charlie Baker included a plan to reinstate the “fair-share contribution” formerly assessed against employers without a health insurance plan in his fiscal year 2018 budget.  The assessment would recommence as of January 1, 2018 if passed.  They are intended to partially cover the $600 million shortfall in the state healthcare system (Mass Health) for low-income residents. The fair-share contributions were repealed in 2013 with the advent of the Affordable Care Act.   For more detailed information check out the Associated Industries of Massachusetts blog. 

 

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Get Your Opinion Heard on Form W-2

The IRS is required, as part of its continuing effort to reduce paperwork (pause for giggles from Payroll Professionals) to invite the public to comment on either proposed or continuing information collections.  This is all part of the Paperwork Reduction Act of 1995.  This time around it is forms we all know and love.  The IRS is currently taking comments the following forms: W-2, W-2c, W-2A, W-2GU, W-2VI, W-3, W-3c, W-3cPR, W-3PR, and W-3SS.

They want to know how to improve the form so it is less burdensome. One area that immediately comes to mind is the lack of space for reporting the Additional Medicare Tax. In my opinion it would be better to have a separate box for the wages and the taxes. Just a reminder that box 9 is already taken as of 2017 so you can’t suggest using that box for anything.   You need to submit your comments directly to the IRS. They accept comments from any user so you don’t have to be an “accounting firm” or a “law firm”.  They want to hear from users. Written comments must be received on or before December 12, 2016 to be assured of consideration.  Written comments are directed to:

Tuawana Pinkston, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW, Washington, DC 20224

Requests for additional information or copies of the collection tools should be directed to Sara Covington, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW., Washington, DC 20224, or through the internet at Sara.L.Covington@irs.gov.