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New W4 Planned Release


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25 minutes ago, Yardley CPA said:

 what is required by the new form??

Basically, it requires that you know, in advance, what the numbers will be when you file your tax return at the end of the year.   This smacks of the Obamacare requirement for APTC, know what your income is going to be at the end of the year, and if you are wrong, pay up.

Tom
Modesto, CA

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Likely to be very similar to the one floated for TY 2019.  Programming wise, was no big deal.  As for filling it out, from an employee perspective, probably no worse than current.  If one leaves the new form mostly blank, then the WH should be no worse than current.  For those who already have complicated W4 entries, the new form could be more accurate.  (And like most, I am not fond of change either, but it still happens.)

The real adjustment will be to see how the states shift to "match", especially the ones who still rely on the Fed W4 form.  Assuming the fed form and calculations will not be "final" until late in the year, there will likely be a number of mid stream state changes as few states have the motivation to plan in advance.

If the new form follows the delayed form floated for 2019, there will be 4 new fields.  NonWage Income, Additional Deductions, Tax Credits, and Other Taxed Wages (that is what I called them anyway).  The "privacy" folks complain about having to share private income information with an employer, but the form allowed the sharing only of the result (the additional credits and/or additional deductions) and did not require the entry of the income figures themselves.

Employers will be the first hit on the change, as employees will question them on the change, and likely ask for help.  Preparers could benefit via office visits for assistance with the new form.  Maybe a fee generator, or a at least fee which can be partially credited towards their next return?

Pay stubs will be more complicated, as it seems reasonable the 4 new fields (maybe 8 if states follow suit) will have to be shown.  Also more possibility for payroll errors as there will be 4 new points of data which could be entered wrong...

https://www.irs.gov/pub/irs-dft/iw4--dft.pdf

The above link was the draft instructions for the proposed form (the one which was delayed) and might give good insight for 2020.

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My idea for a W4: Enter the % you want withheld (min 8%). You can still claim exempt if you expect your EIC or other credits to zero out your tax.

This will help part-timers, especially if their hours vary and sometimes have no tax withheld due to low hours in a pay period.

Then everyone will be having a discussion about what % they're having withheld and people will start to understand what their effective tax rate is. And if they're under/over withheld, they can easily increase/decrease the %.

 

 

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12 minutes ago, Abby Normal said:

My idea for a W4: Enter the % you want withheld (min 8%). You can still claim exempt if you expect your EIC or other credits to zero out your tax.

This will help part-timers, especially if their hours vary and sometimes have no tax withheld due to low hours in a pay period.

Then everyone will be having a discussion about what % they're having withheld and people will start to understand what their effective tax rate is. And if they're under/over withheld, they can easily increase/decrease the %.

 

 

This idea gets my total support !

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7 minutes ago, Abby Normal said:

My idea for a W4: Enter the % you want withheld (min 8%). You can still claim exempt if you expect your EIC or other credits to zero out your tax.

This will help part-timers, especially if their hours vary and sometimes have no tax withheld due to low hours in a pay period.

Then everyone will be having a discussion about what % they're having withheld and people will start to understand what their effective tax rate is. And if they're under/over withheld, they can easily increase/decrease the %.

 

 

AZ has that, select a rate.  They went to that from pct of Federal (IIRC) - probably tired of the post election year FWH changes :)

I see no benefit from a flat rate setting.  The average person simply has no interest in peeking behind the curtain.  A flat rate calculation is no easier than deciding on a dollar amount for the year, dividing it by paydays.  (99 allowances,  fixed Addl WH per check.)  Average person wants the uncle sam savings plan large refund.  Not many are willing to take the time to exploit, such as zero WH for 12 months, and a single self deposit in late Dec.

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I tell my clients all the time, you need to have x% withheld, and they ask me, how do I do that? I tell them to either work with their payroll department or try Single 0 and see what % that gives them. Of course, it's confusing if they have pretax items, but... it just shouldn't be this hard!

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3 hours ago, Abby Normal said:

I tell my clients all the time, you need to have x% withheld, and they ask me, how do I do that? I tell them to either work with their payroll department or try Single 0 and see what % that gives them. Of course, it's confusing if they have pretax items, but... it just shouldn't be this hard!

Payroll department should give no advice on preparing a W4... and a W4 has no percentage option so percentage advice is wasteful.

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7 minutes ago, Jack from Ohio said:

Many Payroll companies software will not allow a specific percentage.  I always recommend Single and ZERO exemptions, plus $XX per pay period, if needed.

Many payroll people in companies, have not clue about what we are discussing, causing even more frustration.

No payroll processor should allow a FWH flat percentage, since there is no such allowable calculation (other than for certain off cycle items, if the company chooses not to aggregate).  By using something not allowed (a flat percentage), the employer and all who touch the payroll are subjecting themselves to liability.

If a payroll person gives W4 advice, they are proving their lack of knowledge.

Tough spot for tax preparers.  If you cannot "give" the client a refund, they may think you are missing something (refund shopping).  Most have no idea they could have the money with each paycheck, and that it "is" their money, not some sort of "gift" from the eagle.  The last time (decades ago) I helped someone with a W4, I gave three opinions.  1 was to be neutral at end of year, one was for a substantial non interest bearing "refund", and one was a slight bit aggressive, but not to the under withholding penalty.  It was a family member, who was just scratching by, and by choosing the neutral setting, they had several hundred more in net pay each month, stopping the "scratching by" issues.

What is really interesting, is the IRS has elected to publish ongoing items telling employees to check their WH.  Tells me the IRS is tiring of getting complaints, and that wage earners are not getting needed (or implementing received) advice.  Could be a fair source of additional income for anyone with the ability to take the prior year earnings and tax liability through a wage calculator to give a couple of W4 options.

The new W4 may actually make it easier for preparers to suggest, since the employee has the option to enter specific dollar amounts instead of made up "allowances" and status.

 

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2 hours ago, Medlin Software said:

wage earners are not getting needed (or implementing received) advice

Yes to both.  Not much help out there (except from folks like us) and then when we DO beat ourselves senseless to get them the right information, they "never get around" to telling HR.

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28 minutes ago, Abby Normal said:

Bite me, Medlin. Jeez.

I guess a professional discussion is not your style, nor is the allowance for a different perspective.

I was trying to share what payroll pro's do (not give any tax advice to employees, including help with preparing a W4).  I was thinking those who tell their clients to withhold a flat percentage are not up to date with the W4 not having a flat percentage option might want to give useful advice, rather than giving advice (while accurate) which cannot be used, and could actually take more of the preparer's time to have to calculate a suggested W4 item after already calculating a flat percent.  The client who has received a flat percentage rate to use is goign to complain that someone is a problem, maybe they will blame their employer, maybe they will blame their preparer.  Why take that chance when it is easy to do the figuring and give them a W4 ready for their signature?

The new W4, if it is similar to what was already proposed, will make it easier for the preparer to give useful numbers, since it allows for dollar entries, not made up status and allowance.  The numbers should already be at the preparer's fingers.  The complicated part will be when a taxpayer prefers not to divulge (to their employer) their additional revenue amounts, but the form allows for entry of credit/deduction amounts instead of (maybe also in addition to, I cannot remember) specific income amounts.  Whether or not we like it in principle (it really should not be as hard as it is), complication in tax processing is what we all make a living on... candidly, no only likes complication, but a real flat tax method would have us all looking for other work - which is timely given the proposal to prevent the government from providing free efile methods in perpetuity I was just reading about.

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Medlin, what new fields would be on paystubs?  I only glanced through it, but none of the (many) worksheet info would go to the employer, that's all for the employee's benefit.  Have you seen a draft of the actual W4 page that will go to employers?  I'd guess it won't look much different, the new stuff is all for the employees benefit.

And yeah, most employees are going to throw up their hands and guess.  Employers aren't going to be to thrilled either, if they have to give a 6+ page form to everyone.  More money for the paper mills, I guess.

 

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image.thumb.png.375935f94c0ffd5b49b0935962b63145.png

13 hours ago, GLJEANNE said:

Medlin, what new fields would be on paystubs?

I can only guess at present, since there is no draft form (supposed to be released in May).  What I base my guess on is the one floated for 2019, then delayed, primarily because of payroll industry lobbyists (I think, but I could be wrong).  I had (and kept) programming code to calculate using the new W4.  I needed four new data points (actually 8, as there is a chance at least one state will copy).  Since those data points directly affect the calculation, my preference is to include those data points on the stubs, so the employee can self calculate / self check their paycheck.

NonWage Income, Additional Deductions, Tax Credits, and Other Taxed Wages (that is what I called them anyway).

The following link appears to be the instructions for the former draft version.  https://www.irs.gov/pub/irs-dft/iw4--dft.pdf

---

And:

Filing status: Line 3 is used to indicate the employee’s tax filing status. The draft 2019 Form W-4 has checkboxes to indicate that the filer is single or married filing separately, married filing jointly, or head of household. Instead of claiming allowances based on filing status using a separate worksheet, the number of allowances will be calculated automatically based on the filing status that is checked – 2 if single or married filing separately, and 3 if married filing jointly or head of household.

 

 

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If the 2020 W4 is similar to the one proposed but delayed for 2019, MANY will simply need to select their filing status.  This should be close enough for those who are not already doing more than "status and allowance" on the current form.

Could also be the existing on file form will still be honored (as was proposed earlier, and is NOT a programming burden at all), so there may be no requirement for all employees to resubmit.

7 minutes ago, GLJEANNE said:

Ok good.  None of those would be reported to the employer or belong on a paycheck.

Yes, the employee would have to enter figures into those boxes (if they wish).  That is the only way they could be used for calculation of paychecks...

The privacy issue is a non starter.  The employee has the ability to enter direct "other" wage information if they wish, but they can also use calculations to enter the desired adjustment in the other box(es) instead.

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  • 1 month later...

Draft is available.

https://www.irs.gov/pub/irs-dft/fw4--dft.pdf

Changes:  No "allowance" figure, Head of Household Status, Dollar amount for dependent credits, Annual other income (add to taxable wages), Other deductions (if more than standard deduction).  Instructions/suggestions for handling multiple jobs in the household.

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I'm going to chime in here. The privacy issue is moot to me. The taxpayer keeps the worksheets and does not submit them to his/her employer. Number 3 below may ease the pain for current employees. However, for new hires, this will be a challenge. Due to the TCJA, a lot of folks can't itemize any more. The multiply jobs is an issue to me. I'll have to read further but two spouses, deduction amounts on the higher paying job, what does the lower pay spouse do?? 

. Why redesign Form W-4?

The new design reduces the form’s complexity and increases the transparency and accuracy of the withholding system. While it uses the same underlying information as the old design, it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees.

2. What happened to withholding allowances?

Allowances are no longer used for the redesigned Form W-4 to increase transparency, simplicity, and accuracy. In the past, the value of a withholding allowance was tied to the amount of the personal exemption. Due to changes in law, currently you cannot claim personal exemptions or dependency exemptions.

3. Are all employees required to submit a new Form W-4?

No.  Employees who have submitted Form W-4 in any year before 2020 are not required to submit a new form merely because of the redesign. Employers will continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.

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