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. 

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.

 

Keep your knowledge current when it concerns payroll regulations with Payroll 24/7.  For only $149 per year, get all updates daily as they are issued right to your inbox.

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.

 

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.

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.