Jump to content
ATX Community
Sign in to follow this  
Elrod

IRS issues draft of revised Form W-4 for 2020

Recommended Posts

On May 31, the IRS released a draft 2020 Form W-4, Employee’s Withholding Allowance Certificate, which has been extensively revised in response to feedback from the payroll and tax community to simplify the task for taxpayers to accurately calculate their income tax withholding.

https://www.journalofaccountancy.com/news/2019/may/irs-form-w-4-2020-201921371.html

Share this post


Link to post
Share on other sites

This actually isn't horrible, except for the fact that you're no longer claiming a number of exemptions.

But will the payroll software companies really reprogram to accommodate this anytime soon?

I wonder if they're going to change the online W4 calculator at irs.gov.

  • Like 2

Share this post


Link to post
Share on other sites

Actually, I think it is horrible (the same as Abby did in his tiff with Medlin: "What? No percentages?") And since they killed off the number of dependents there's nothing left for the average employee to work with.  It was hard to get them to fill out a W-4 before and even then they could only because they knew they were single/married and who lived with them.  Now the boss gives them five pages of junk and says "Fill this out."

 I can imagine how that's going to go.  People at small employers like a cafe will simply say "I can't do this" and hand it back to the boss who will then bring it to me.  Large employers (factories) will require their people to fill it out or be replaced; they'll take it to the payroll clerk there who will say "I can't do this. Take it to your tax person."  We'll also get those.

As Medlin said, you can make some money out of this, but my God, at what cost?  How many hundred people have I seen who are dissatisfied with their withholdings at tax time (and they'll remember who filled out that new form). There's not enough money to compensate us for the ill-will that will be generated amongst clientele when it doesn't work out. 

When those forms are issued I think I'll either take a vacation or, like the college kids, try to find a "safe space" where I can't be found for a good while.

  • Like 5

Share this post


Link to post
Share on other sites

Software can easily calculate whatever the wonks come up with.  In most cases, the wonks provide the formula!  (CT WH is one exception).

Have not seen or heard any new examples of the new calculations.  IF, the new calculation will be similar to what was proposed for 2019, there will be "implied allowances" per status.  This makes sense (still can't believe I wrote that) since there is no requirement for employees to provide a new W4, and since states also rely on the soon to be old federal W4.

Likely there will be two forks to the 2020 FWH calculation, one using pre-2020 W4, and one for the 2020+ W4.  No problem for a programmer to handle.

Yes, there will be many questions we are all paid (thankfully) to answer...  The privacy shouters will complain about "having" employees "required" to share personal info, but the form allows additional deduction dollars and additional taxable dollars, without having to state the reason.  It is perfectly fine for an employee not to state an "other income [4a]" figure.

Share this post


Link to post
Share on other sites
15 minutes ago, cbslee said:

Actually, if they don't fill it out, the fallback default is S - 0.

Referring to the upcoming possible new form for 2020, you are incorrect.  The new form is not required at all, other than for new hires, those filing exempt (by the normal deadline), and those wishing to use something other than their currently valid form.  Jan 1 2020 does not make the existing valid in place forms invalid.

Share this post


Link to post
Share on other sites
1 hour ago, Medlin Software said:

Software can easily calculate whatever the wonks come up with...the wonks provide the formula...No problem for a programmer to handle...Yes, there will be many questions we are all paid (thankfully) to answer...It is perfectly fine...

So, you're saying (as Don Draper always says to Betty), "Everything's going to be alright."???

Share this post


Link to post
Share on other sites
4 hours ago, Medlin Software said:

Referring to the upcoming possible new form for 2020, you are incorrect.  The new form is not required at all, other than for new hires, those filing exempt (by the normal deadline), and those wishing to use something other than their currently valid form.  Jan 1 2020 does not make the existing valid in place forms invalid.

I suggest you read FAQ # 16

Share this post


Link to post
Share on other sites
42 minutes ago, cbslee said:

I suggest you read FAQ # 16

I suggest you revisit FAQs 3 and 19.  The Only item I did not see referenced is the fact that there is one, and only one class of non new hires who must use the new form (those claiming exempt), but since there is not likely to be a change in the exempt forms aging out each year, there is no reason to include the existing rule in a FAQ about change (if one were to apply logic to tax dealings...).

FAQ 16 ONLY applies to hires after Dec 31 2019.

"The new form is not required at all, other than for new hires, those filing exempt (by the normal deadline), and those wishing to use something other than their currently valid form.  Jan 1 2020 does not make the existing valid in place forms invalid."  My earlier statement is supported by the entirety of the FAQ.

  • Like 1

Share this post


Link to post
Share on other sites
6 hours ago, BLACK BART said:

So, you're saying..."Everything's going to be alright."???

 

5 hours ago, Medlin Software said:

For calculations, yes.

Look, I know you're just trying to help and thanks for laying it all out for us (obviously you've done a lot of research), but I guess the problem is that many of us don't want to do calculations and become responsible for clients' withholdings.  It's like doing the tax return twice; but they won't want to pay you very much for a W-4 form.

Of course I'm beating a dead horse here because IRS will do what they want, which is probably to collect more money up front.  Software (which I don't want to buy) can make it easier, but it won't absorb the blame when taxpayers give you understated or wrong estimates and owe money in April.  We had a perfectly good, simple, and practical W-4 which was the taxpayer's problem - not ours.  If short, all they needed to do was write in hold X dollars per week more next time. Now (along with the 1040) it has been blown all to hell - they've created a problem and handed it to us.  Maybe the "estimates" will work out; maybe they won't, but clients will have a handy target when they don't.

Okay; rant over, but Lion's right - this isn't simplification.  It's more in the direction of the ever-expanding 8867 whereby we became IRS' "partners". 

  • Like 3

Share this post


Link to post
Share on other sites

For the small number who have not already adjusted their W4 data, I suspect many will not care about the new form either.  Those who have already updated, will be able to use the form's instructions, or get advice from whomever helped them in the past.

---

Those who do not manage their withholding well already (meaning have not already adjusted because of over/under for 2018):

Are the ones who complain to their employer that the employer did not withhold enough or withheld too much.  Employer should never give tax advice, and is likely to tell employee to consult with their tax person.  I cannot count how many times I had to prove the calculations we use are accurate when employees complained to their employer.

Are not likely the tax customer of anyone here.

---

IIRC, the implied allowance figures will be reasonable, allowing new hires to easily handle the new form with just Step 1, and Step 5.  While this may not get the big refund many seem to like, and could result in a balance due, it will not often result in underpayment penalties.  The new form has a section for actual dependent adjustments, instead of "allowances".  Over time, this should be less confusing.

---

" but I guess the problem is that many of us don't want to do calculations and become responsible for clients' withholdings.  It's like doing the tax return twice; but they won't want to pay you very much for a W-4 form. "

This is interesting, at least to me.  Employers cannot help fill out the form, so who should?  When one of my customers asks what they should say to their employers, are you saying the employer should just say "not me", versus to consult with their tax expert?  At present, I have no better advice than to consult with the emplyoee's tax expert, since that is the person/firm who (in addition to the employee) has the needed information.  Their tax expert has already taken on responsibility for the tax prep, so providing suggestions for a W4 should not increase liability at all.  If the employee does not want to pay for the half hour to get W4 advice, then the expert could do something like credit some or all of the W4 fee towards tax prep at EOY.

All I am after is having fair advice to give employers (to give to their employees).  I am open to suggestions...  Currently, could be all of part of: Employees control their withholding via their current valid W4 form.  Employers must blindly follow the employee's directions (via valid W4).  Employers should not assist with W4 prep, since the employer is not likely serving as the employee's tax expert.  Employees needing help with their W4 should consult with their tax expert.

 

Share this post


Link to post
Share on other sites
23 hours ago, cbslee said:

Actually, if they don't fill it out, the fallback default is S - 0.

I think the fallback (once the software has changed) will be the employees wages at that company as if they were single taking the standard deduction, which essentially is single 0.

To me, the improvement is that the employee can't claim a bunch of allowances to reduce their withholdings so much that they owe a ton at year end.

If joint filers take the time to look up the (yet to be published) numbers in the tables in the instructions, they should have a better and an easier way to get their withholdings close.

Paychecks are going down in 2020 if the new calculations are implemented by QuickBooks and other payroll software, and the IRS will spend fewer resources on collections.

Share this post


Link to post
Share on other sites

"I think the fallback (once the software has changed) will be the employees wages at that company as if they were single taking the standard deduction, which essentially is single 0."

For new hires after Dec 31 2019, no valid form will likely be single (as always).  The difference, again just guessing using the earlier proposed calculations, will be an implied allowance number.  I can't remember if married was 2 and single 1, but I do not remember any with a zero implied.

Share this post


Link to post
Share on other sites

Box 2 checked, means taxable is not lowered by any allowance amount, and a "higher" rate schedule is used.  Otherwise, "implied" "allowances" are 3 for married jointly, 2 for any other status, and the "standard" rate schedule is used.

Share this post


Link to post
Share on other sites

Which is exactly how people got in trouble using the worksheet on the old W4.  A single person came up with 2 allowances and was guaranteed to be underwithheld.  I filled out a new W4 for a client at the end of the tax season who was disappointed because he owed.  Sure enough, he claimed 2 (using the old form) because he used the worksheet.  He is an engineer and presumably knows basic math so he didn't make a miscalculation.

Share this post


Link to post
Share on other sites
On 6/7/2019 at 6:14 PM, SaraEA said:

Which is exactly how people got in trouble using the worksheet on the old W4.  A single person came up with 2 allowances and was guaranteed to be underwithheld.  I filled out a new W4 for a client at the end of the tax season who was disappointed because he owed.  Sure enough, he claimed 2 (using the old form) because he used the worksheet.  He is an engineer and presumably knows basic math so he didn't make a miscalculation.

Can;t disagree.  There will be some who will need to use the additional WH field.  The form itself does not state the implied allowances, but those who are like your example likely have already made adjustments.  Personally, the whole "allowance" deal is being left in place to lessen push back from the states who use the federal form for their own WH calculations...  From a purely payroll perspective, all employees should be using separate W4 or equivalent forms for federal and state.  This has been my advice for years (for several reasons, such as telecommuting and domicile changes), but has become more important in the last couple of years.

  • Like 1

Share this post


Link to post
Share on other sites

Sara,  you are exactly right about the S-2 situation that in essence makes a single person with one job claim the second deduction.  In fact, the W-4's originally came out with that error every since the Reagan tax cut days.  Even with another major change with the W-4's, the S-2 problem still existed.  Whenever I had a new single taxpayer with one job who would come in and want to know why he owed IRS, I knew exactly what went wrong!  I was always able to warn the student taxpayers with one job not to ever claim S-2, and with the sit-down with each client prior to the Reagan tax cut year, it was as if I had prepared 2 returns for each client that year...and for one of each of those second returns I couldn't charge (should have but didn't).

Fellow tax preparers said they were being fussed at for them owing at the end of the Reagan tax cut year.  

I shouldn't have wasted all of my time that year as it was a ho him year because all refunds had been planned.  Didn't feel appreciated in other words!  :)

This is just another sweet talk from IRS to get us to do their work for them.....then do everything they can to cut our throats at tax time!  

Retirement time is looking better and better.

Share this post


Link to post
Share on other sites

Seems better than the current forms to me. For people in the simple situations I'll probably just tell them how to fill out steps 1, 3, 5, and possibly check the box in step 2. For people in more complex situations, especially if they don't like their overly large refund or balance due, I'll have to get a feel for it but I'd say it'll only take about 10 minutes of billable time to fill it out after I've completed their prior year return.

It would be nice if the W-4s could be even simpler, but I'm not sure how much better they can do without completely overhauling the tax law. So long as we still have graduated tax rates it's not going to be easy to calculate withholding when the filer(s) have multiple jobs.

  • Like 1

Share this post


Link to post
Share on other sites

"1, 3, 5, and possibly check the box in step 2 "

At least in our software, we will enforce box 2 being exclusive (box 2 means nothing can be selected in 3 and 4, or the form is invalid).  Box 2 means no allowances and higher withholding (via higher dollar brackets), see draft Pub 15-T.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Restore formatting

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

×
×
  • Create New...