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IRS issues draft of revised Form W-4 for 2020

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40 minutes ago, Medlin Software said:

"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.

Subject to changes in the final regulations/instructions!  The current reading states to "either" select Box 2, or use 4c.

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14 hours ago, Jack from Ohio said:

In 20 years of practice, I have NOT been successful at getting clients to change the withholding at their employer.   

And I've caught employers not correctly calculating withholdings, especially state withholdings.

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20 minutes ago, Abby Normal said:

And I've caught employers not correctly calculating withholdings, especially state withholdings.

Yeah, I have a client with 4 employees who insists on manually  calculating his paychecks.

The WH calculations are all over the place, then I have to clean it up when I do the ATF recordkeeping.

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Abby, I have a payer who started withholding CT's new mandatory 6.9% rate.  I sent in a new W4P and requested 5% withholding (the 6.9% is for couples with $1m in taxable income--not quite there yet).  So they stopped all CT AND federal withholding.  Go figure.

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13 hours ago, SaraEA said:

So they stopped all CT AND federal withholding.

Maybe that's the answer.  Stop all withholding, and have people make quarterly payments.  They may be much more leery about who they send to be their local and federal legis-vermin if they get a quarterly reminder of how much it's all costing them!

And WE wouldn't get the questions and complaints about the bleeping W-4 forms and owing and lower refunds and heaven only knows what else.  That part would be a win for us!

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3 minutes ago, Catherine said:

Maybe that's the answer.  Stop all withholding, and have people make quarterly payments.  They may be much more leery about who they send to be their local and federal legis-vermin if they get a quarterly reminder of how much it's all costing them!

And WE wouldn't get the questions and complaints about the bleeping W-4 forms and owing and lower refunds and heaven only knows what else.  That part would be a win for us!

There would be questions 4x per year instead of once per year, at least for tax preparers...

As much as I do not like how employees try to blame employers for incorrect WH (which trickles to me, for which I have to say the employer, via our software, withheld exactly what the employee directed via their W4) - if the process was easy enough to remove most questions, there would be nothing for me (us?) to process at all.  Kind of like how modern consumer vehicles have become reliable enough there is much less need for skilled mechanics (just people who can replace what a computer tells them to replace).

While I do not spend time digging into the issue, I have to wonder if those who were opposed to a very similar change for 2019 were worried about how the new form will actually be easier, versus claiming it will be harder.  From my personal perspective (payroll) it is absolutely little effort to program, and the form itself reads easier than the old form, for those who traditionally have had issues getting close to even at the end of year.  Of course, change is good for me/us, and when eventually there is a new administration in charge, there will be change again since net pay and appearing to give more has been an issue for every administration going back for quite some time.

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2 hours ago, Medlin Software said:

There would be questions 4x per year instead of once per year, at least for tax preparers...

You're probably right.  Even if the questions are merely "WHO do I send this check to?  When is it due?  Is it really this much?"  

""Where can I go to get my poodle clipped, in Burbank?" questions, questions, questions facing concerned young Americans today."  Frank Zappa.

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I guess I'm in the minority not minding the questions. If we're going to have a complicated tax system then someone needs to help people navigate it.

The only way to really simplify W-4s would be to eliminate all deductions and all credits and all tax brackets and all filing statuses. Everyone would just pay a flat tax on their wages and couldn't write off anything against it. Maybe the government could even start running its welfare programs through the Department of Health and Human Services instead of through the IRS.

Yeah, I know...

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I've always felt that there should be no withholding, and taxpayers should write one (plus one more for each state they're connected to) big tax check with their tax return. Actually write the checks. Then they would know how much their government is costing them and could weigh the costs/benefits and vote accordingly.

Until then, I highlight the Tax Liability lines on summaries to point out their taxes, not refunds or balances due.

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Created the code to calculate using the new options, using the 2019 calculations per draft Pub 15-T.  Using annual figures, all with 75k taxable, no extra income, credits, or deductions.

Single 2 Jobs (2020 W4 option) 13623 FWH

Head of Household 2 Jobs (2020 W4 option) 12175 FWH

Single 0 Allow (old W4) 11522 FWH

Single 1 Allow (old W4) 10598 FWH

Single 2 Allow (old W4 or 2020 W4 form with implied allowances) 9674 FWH

Married Jointly 2 Jobs (2020 W4 option) 9674 FWH

Married Jointly 0 Allow (old W4) 7196 FWH

Head of Household 2 Allow (2020 W4 option) 6901 FWH

Married Jointly 2 Allow (old W4) 6188 FWH

Married Jointly 3 Allow (old W4 or 2020 W4 form, implied allowances) 5684 FWH

---

Note the two in bold.  Shows insight as to how the Married 2 jobs was "built".  Using the new W4, Married with the two job box checked is the same WH as Single (which has 2 implied allowances)

The Single 2 jobs is the "new" calculation, as well as federal Head of household WH status.

Using my test figures, the possible under withholding (new form) for those with less than the implied allowances, is significant.  For those preparing the new form, knowing the implied allowance numbers will be needed, if comparing to knowledge of what was on the old form, or using "experience" with the old form.  This can be handled relatively easy.  Whatever the allowance value is (currently 4200), if you want to claim less than the implied number of allowances, add the allowance amount (currently 4200) per each allowance less you want to claim, other income (4a).  To equal what the old Single 0, use Single, with 8400 (using current allowance figure) as other income.

With the new Single 2 jobs being radically more WH than the current Single zero, and with many set on the idea of using the current Single zero as a "fail safe", the new "fail safe" would be Single, 8400 (adjust for the new allowance figure for 2020 and beyond) other income.

---

Of course, until the final revisions are released, it is only speculation...  With no impetus to negate the existing forms, the calculations and W4 seem reasonable, even with the ugliness of implied allowances in the new calculation.

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23 hours ago, Lion EA said:

highlight the Tax Liability lines on summaries to point out their taxes, not refunds or balances due

I stress the actual percentage of total income (not taxable income like ATX does).

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I also compute the percentage of tax to taxable income, but I have a lot of investors and others that have income without withholding. So, I calculate what percentage their withholding must be from employment to cover ALL their income vs. what percentage they now are having withheld. Sometimes, that gets their attention. Sometimes, they make changes. (Working out their W-4 to make the changes is a real pain, though.)

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2 hours ago, Lion EA said:

I also compute the percentage of tax to taxable income, but I have a lot of investors and others that have income without withholding. So, I calculate what percentage their withholding must be from employment to cover ALL their income vs. what percentage they now are having withheld. Sometimes, that gets their attention. Sometimes, they make changes. (Working out their W-4 to make the changes is a real pain, though.)

That's what I do, but if they're retired and have to make estimates, I honestly prefer they have zero withholdings from pensions to remove that variable from the equation when calculating next year's estimates.

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