PUBLICATION 15 (CIRCULAR E)

[BLACK BART]

Anybody seen one of these yet or is there even going to be one?  I ordered and received a few blank 1099-M, W-2s (and others) this week to hand out to a few freebie DIY'ers (church treasurers, etc.), but there weren't any of these booklets like last year.  With the revised W-4 situation, I wouldn't be surprised if we have to print them out ourselves.

 

[Lee B]

I only see a draft version dated November 25th ?

[Lion EA]

The IRS now has an downloadable Income Tax Withholding Assistant for Employers spreadsheet:

https://www.irs.gov/businesses/small-businesses-self-employed/income-tax-withholding-assistant-for-employers

[Edsel]

Whether we like it or not, we are being drug kicking and screaming into the electronic age.

[Medlin Software, Dennis]

Those processing will now have to have P15 AND P15T on hand.  The calculations will only be in 15T (the last time I checked, but certainly could change...).  "Draft" versions are available on the IRS web site as of Nov 28.

[Abby Normal]

20 hours ago, Edsel said:

Whether we like it or not, we are being drug kicking and screaming into the electronic age.

Only since the 80s.

[Medlin Software, Dennis]

21 hours ago, Edsel said:

Whether we like it or not, we are being drug kicking and screaming into the electronic age.

I have customers, preparing payroll for others, that are griping because they still want to use XP or another obsoleted OS (By the maker of the OS).  At the turn of the century, I had some who did the same, insisting they could only use a DOS based OS.  I have some who are in "business" claiming they have no internet access, which I know is untrue (except for a monastery), and they must have a CD.  (Wayfair makes it untenable to continue to offer CD's based on how certain states implemented Wayfair, and the minuscule number who still ask for a CD.)

If I were to have someone else handle data for me, I would ask for information showing their hardware and software maintenance policies and status.

[BLACK BART]

Well, is it okay if I'd prefer the previously check-sized W-4 instead of the new "simplified" five-page form?  Getting the average fast-food employee to fill out the new W-4 correctly is going to be about as likely as their getting a fast-food order right (maybe 50%).  And then we get to follow it up with the following red-tape special:  Yes, yes; it's just wonderful! 

 

How to Use the Tax Withholding Assistant

Open the Tax Withholding Assistant and follow these steps to calculate your employees’ tax withholding for 2020. Be sure that your employee has given you a completed Form W-4. The Assistant can accommodate both the 2020 Form W-4 and Forms W-4 from prior years.

You will want to save a separate copy of the spreadsheet for each employee.

Indicate how frequently you pay your employee.

Specify which version of Form W-4 applies to the employee.

Enter the requested information from your employee’s Form W-4.

Save a copy of the spreadsheet with the employee’s name in the file name.

Each pay period, open each employee’s Tax Withholding Assistant spreadsheet and enter the wage or salary amount for that period. The spreadsheet will then display the correct amount of federal income tax to withhold.

[Edsel]

On 12/23/2019 at 2:09 PM, Medlin Software said:

I have customers, preparing payroll for others, that are griping because they still want to use XP or another obsoleted OS (By the maker of the OS).  At the turn of the century, I had some who did the same, insisting they could only use a DOS based OS.

Medlin, the impact of this type of conversation is to point out how behind the times some people are (like probably me).  I understand and appreciate that software is your living.  And yes, some of us having been kicking and screaming since the '80s like Abby said.

I use software to a degree probably years behind most folks.  Software, like all industries, is subject to corporate indulgence at the guise of helping users.  We are always pushed hard into the most recent and supposedly benign of products by software developers.

A classic example is Microsoft Vista - the next "wave" of operating systems to suck up all users of previous systems.  User hostile, and after a couple years of pathetic sales, Microsoft was going to pull the rug out from everyone - stop loading XP into new computers and FORCE users to buy Vista.  How did this work?  People simply stopped buying PCs.  The general perception is Microsoft gave up on Vista, and trotted out another operating system.  XP was so popular and so stable that support was only discontinued a few years ago.

Add also the numerous software "upgrades" to help users run software packages more efficiently.  More often than not, the users can't tell the difference except for the bombardment of advertisements from the software companies.

Successful software companies often develop fantastic products - so popular that the entire market buys at every opportunity.  However, when the market is saturated, these companies naturally try to improve on a product that is virtually so perfect that the public does not want to be pushed into something else.  At this point the successful software company becomes a victim of its own success.

Best wishes for your success, Medlin - you are a great contributor, and I wish you no bumps in the road.  I am just not one to jump in to the latest siren song of just any software.   "Be not the first on which the new is tried, nor the last to put the old aside."

 

[Medlin Software, Dennis]

15 and 15T were posted early on the 24th.

One thing I learned over several decades is people just don't like change.  I can agree.  But, society has changed to the point where the first reaction of trouble is to prove it was not your fault, so I have to also react using common sense, like not letting someone who has important data (such as payroll data) continue to put themselves (and by the blame game, me) in jeopardy via using a known unsafe OS.  It is not me who stops updating the OS...  If people knew someone holding their data was using an outdated OS, they would/should bolt.

One thing which is tough to argue is there is zero excuse for using an outdated OS when the cost is so small.  No one was forced to use Vista, XP was perfectly viable and supported.  But, many who stuck out with XP over Vista have ignored the consequences of continuing to stick with XP.

As an aside, I was just reading that a certain country has figured out how to get past two factor authentication, which so many "experts" think is the solution to security... which is why any behavior other than assuming and acting as if all data could fall out of your hands, is unwise.

[Abby Normal]

On 12/24/2019 at 11:14 AM, BLACK BART said:

How to Use the Tax Withholding Assistant

Open the Tax Withholding Assistant and follow these steps to calculate your employees’ tax withholding for 2020. Be sure that your employee has given you a completed Form W-4. The Assistant can accommodate both the 2020 Form W-4 and Forms W-4 from prior years.

You will want to save a separate copy of the spreadsheet for each employee.

Indicate how frequently you pay your employee.

Specify which version of Form W-4 applies to the employee.

Enter the requested information from your employee’s Form W-4.

Save a copy of the spreadsheet with the employee’s name in the file name.

Each pay period, open each employee’s Tax Withholding Assistant spreadsheet and enter the wage or salary amount for that period. The spreadsheet will then display the correct amount of federal income tax to withhold.

This would be a great satirical play or short film.

[Medlin Software, Dennis]

2 minutes ago, Abby Normal said:

his would be a great satirical play or short film.

"correct amount"

Very true, and sad.  The only correct amount is to under withhold to some comfortable factor, then, as some do (me included), spin up a realistic estimate of actual annual liability the last week of each year, and make a deposit to have withholding plus the deposit cover the projected liability (or at least to get into the no penalty range).  It is silly to have enough withheld, knowingly, to get a refund, and just as silly to get into penalty.

While I still opine tax preparers are the place employees should go for W4 advice, many preparers do not want the extra work, leaving the employee's to try to get advice elsewhere.  The new form will make it worse for those who do not study, since there are no "allowances", and new fields which some will not understand at all..

 

[Catherine]

We generally tell clients (when they bother to ask) what their annual tax liability was for the past year.  We can also help them divvy it up between a married couple, and (barring bonuses, stock options and other perturbations), tell them "tell your employer you want $X withheld for the feds every pay period."  The employer can figure out how to do that.  I hope!

[Medlin Software, Dennis]

1 minute ago, Catherine said:

We generally tell clients (when they bother to ask) what their annual tax liability was for the past year.  We can also help them divvy it up between a married couple, and (barring bonuses, stock options and other perturbations), tell them "tell your employer you want $X withheld for the feds every pay period."  The employer can figure out how to do that.  I hope!

The employer should do no such thing!  Employers should NEVER prepare a W4 for their employee.  The employer must follow exactly what the employee directs, via their latest valid W4.  There is no item on a W4 which allows for a flat federal amount per pay period (without knowing how to manage several fields, which most employees cannot do).  If an employer helps with a W4, giving any advice, then they have inserted themselves into the liability chain, and if tax prep is regulated in their area, have likely offered tax advice without a license/registration.

Same goes for "withhold ##%" advice, the employer has no such ability, and the employee will have no idea how to make it happen.

Of course, I look at from the employer side, what rules the employer must follow.  Unless you prepare payroll and study the withholding regs, such as W4, you would never know, thus my internal insistence on trying to help educate.

Not my area, but a thought... W4 prep is an area which could be profitable.  For example, $50 to help prepare a federal W4 and a state form (which is a near must now, separate forms), with all or some applied as a credit on their nest tax prep fee.  For regular clients, suggested W4 forms with their return, and a paid review in your "slow" season, say early summer, to enhance retention.  For getting new clients, maybe a local ad/offer after your vacation once filing season closes, and again in the fall, to try to get their return business.  The flaw is some will simply shop for the highest refund, with no thought as to their free loan to the IRS.  I have heard that view before, from many, and I understand, but now, with the withholding tables BARELY, if at all, covering liability, and with the states having their own calculation issues, this is an issue few can ignore.

 

[Tax Prep by Deb]

Has anybody ran any projections based on the calculations of the worksheet for the W-4, then compared that outcome to the employer tax withholding assistant from IRS?  I just did.

I had completed the W-4 worksheet based on married filing jointly with two jobs.  One earning 100,000 per year paid monthly, the 2nd earning 50,000 per year paid monthly with 4 dependents under 17.

For the 100,000 per year the worksheet indicated $777 per check being withheld, but the tax withholding assistant from IRS is indicating only 52 per check

[Abby Normal]

22 hours ago, Catherine said:

We generally tell clients (when they bother to ask) what their annual tax liability was for the past year.  We can also help them divvy it up between a married couple, and (barring bonuses, stock options and other perturbations), tell them "tell your employer you want $X withheld for the feds every pay period."  The employer can figure out how to do that.  I hope!

This is what I do, too. There's nothing wrong with asking your payroll department to help you get the withholding amount you want withheld. If they won't cooperate then you have to fill out a W4, wait till your next paycheck, and if the amount is not what you want, fill out another W4 with an additional withholding amount, if you were under withheld.

The new W4 complicates this process a bit, but we'll adjust to it.

[Medlin Software, Dennis]

Employees can ask anything, but employers should not assist.  No different than an employee (or clients) asking for marital advice.  Employers are tasked with plenty of things, and should not do more than tasked.

[BLACK BART]

On 12/25/2019 at 6:34 PM, Edsel said:

...Best wishes for your success, Medlin - you are a great contributor, and I wish you no bumps in the road...

Medlin,

I think Edsel's quote is how most of us feel about you -- you know many things and many of us are glad you're here to interpret them for us.  But for many of us, I don't believe your plan/plans will work out.

For example:

While most large companies will simply turn over the problems to a large CPA firm, the majority of businesses are small.  Many of their employees WILL ask their employer what to hold out.  Practically nobody is going to pay you $50 to fill out something they've never heard of and probably care less about.  Employers (and employees) are rushed anyway and they won't take somebody out of service for half an hour to go over it, plus they're unaware/uncaring about who is practicing unlicensed tax. I wouldn't be surprised to see this substitute W-4: a cafe ticket with the following scrawled on it - JOE BLOW 444-55-6666 "HOLD  OUT 10% FOR TAXES." 

But, anyway I expect to see the whole mess scrapped next year.  Even IRS employees probably already hate it & the 1,001 crazy questions they'll have to try and answer.

[Medlin Software, Dennis]

Catch-22.  Employers must use the "no W4" instructions, or follow the last valid W4.  Employers have zero ability to honor any napkin, or handwritten request (except for the new instructions for claiming exempt).  Employers face liability if they do anything else, including offering to help with a W4 (and I suspect most preparers don't want any employer or other non trained person offering tax advice).  Since I work with employers, I have to know the rules they are subject to, and when asked, advise accordingly.  yet here, I see the tax preparer perspective, which does not always align with the rules for the employers.

Likely, nothing will change, as there is no financial incentive, but I will continue to try to educate!  I just cannot get it through my thick skull how it is any more time consuming for a preparer to recommend legal W4 settings versus giving something the employee cannot actually use (and when attempted, causes conflict with the employer who follows their rules).  I get asked often (daily this time of year, and likely multiple times per day in January) what an employer should do when an employee requests a flat percent, or a dollar amount for the year.  My answer will remain the same, employer can provide the form and instructions, but is not to help fill out the form, or honor anything other than a valid W4 form.  (Yes, there is online training for employers to learn what is valid, since the liability is not to be ignored.)

While my opinion hardly matters, the new W4 form, under the current administration's rules, is an improvement, as removing allowances is a good idea, and adding very direct means to indicate credits and other items to alter withholding allows for more accurate withholding.  Most complaints are about "change" in general, and the delay in implementation was caused by some unfounded privacy concerns.  Of course, the issue would likely be moot, except for the continuing trend of the administration to play with the calculations to try fool voters (and the politicians must be convinced it works, since it continues) into believing they are making more money... The issue is this time, the administration cut the rates low enough to actually cause those who do not manage their withholding (far too many) to not only not get a fat refund, but to owe!  Personally, I got many complaints that I must be using incorrect calculations, since employees were complaining about owing.  I am certain I lost customers over this, as they just changed instead of accepting the truth.  I suspect there was more churn than usual in the tax prep industry as well, for the same reason.

Small businesses are the ones I most worry about, as they do not always have the experience to keep them as protected as they can be.  We have discussed this before, such as when a preparer's client has an "employee" who is being paid as a contractor, and the consensus is usually to have the "employee" eat the taxes the employer is avoiding, and while usually unspoken, work without benefit of UI or WC coverage.

 

[Catherine]

Well one huge problem here is that we, as tax pros, can tell people "have $X withheld and you'll be fine" but that does NOT translate into anything useful for this new W4.  An iterative process - fill it out this way, see what the first paycheck looks like, fill out a NEW W4, see what the 2nd paycheck looks like, is both way more than most folks are willing to do and needlessly work-heavy for the PR dept too.  There *should* be a way for a taxpayer to say "$X per paycheck" and be done.  

My personal feeling is that there should be ZERO withholding, and everyone should just send in quarterly checks.  That will make them think *very* carefully about what/who they vote for!  Yes, it's hard for some folks (less so under the TCJA).  That's part of being a grownup.  But it also would get the employers OUT of the tax business and back IN to the business of running a business and dealing with other employee concerns (where they should be active).

[Medlin Software, Dennis]

I know someone, who for decades as an employee, has zero withheld, other than in December.  Perfectly legal as long as enough is WH in December, or manually deposited in time, to meet the WH requirements.  Of course, not many have the discipline knowledge...  Yes, the person received a lock in letter when the old "send in the W4" rule was removed, but a "quick" phone call removed the lock.

My point to my part of this conversation is employers are already "out" of the process because they are not legally directed to offer W4 assistance.  Employers, without comment, accept W4 forms, and act on the valid ones.  Most employers will return invalid W4 forms, but if done correctly, will have no comment on what is invalid on the form.  Employers are robotically withholding and remitting as directed by the employee and tax agency.  The issues arise when employees fail to do their part, and ask the employer for assistance with the W4, or blame the employer for what the employee perceives as incorrect withholding.  So that leaves, someone like me, who wants to offer employers something to say, quickly and accurately, when employees inquire, with one logical reply.  Something similar to "Employers have to follow specific regulations.  Employers are required to withhold based on the last valid W4 received, or use the "missing" W4 calculations.  Employers are not directed to assist with preparing employee W4 forms in any manner.  If an employee needs assistance with preparing their W4 form, the employee's tax preparer is the most reasonable place to seek assistance."

Just as preparers have rules they must meet, and things they cannot do (do only what is required, nothing more, nothing less), employers are in the same position.  W4 prep is absolutely an item an employer is not required to do or provide.  If you accept this as being true, then giving W4 type advice which is useless (such as instructions which cannot possibly be carried out on a valid W4) serves no purpose, and can cause friction between employee and employer, or even between those giving the unusable advice and the client.

All should be reviewing their W4 (and results) three times a year, or, if that is untenable, using the new withhold at higher rate option for max withholding calculation.  With the withholding calculations being entirely political (instead of relating to liability), the "set and forget" method of times past no longer works.  The new W4 settings now have "implied allowances" (to allow for the new and old forms to work) which means the new form has no single/0 or married 0 for those who want more withholding than the "norm".

---

Assumes same wages are expected, adjust WH up or down if wages are expected to change).

End of Jan, mult WH by 12, and compare to prior year liability.  Adjust as needed (via additional WH per check) to meet at least the prior year liability.  This is the stay out of under withholding penalty check.

If There is no capacity to make a substantial manual deposit at end of year, review at end of June.  Make adjustments as needed based on actual Wh for the first 6 months, compared to projected liability.

End of Nov.  Compare actual WH, plus estimated WH for Dec, against projected liability.  It is likely a quick "test" tax return can be done to get a more accurate liability.

[Abby Normal]

19 hours ago, Catherine said:

ZERO withholding, and everyone should just send in quarterly checks

THAT would be a disaster.

[Abby Normal]

If your HR department is unwilling to help their employees get the correct amount of withholding, they are not doing their job. The employee ultimately signs their W4, so it is ultimately on them.

 

[Medlin Software, Dennis]

1 minute ago, Abby Normal said:

If your HR department is unwilling to help their employees get the correct amount of withholding, they are not doing their job. The employee ultimately signs their W4, so it is ultimately on them.

 

I disagree.  Turn it a bit.  Since your client also signs the tax return you prepare, does than mean you need no training, no experience, and have no liability for your mistakes?  (Or take it further, do you simply not need to sign the return you prepare because your signature means nothing, despite the actual paid prepare regulations?)

The government has put certain collection burdens on preparer's, essentially making preparer's the first line of fraud defense.  The government has REMOVED that rule from employers, with the removal of the requirement to submit questionable W4 forms for "inspection" (at least for federal purposes).  The employer's obligation is to use the last valid W4 (or the "no W4" requirements).  Nothing else.  There is no direction requiring an employer to "help" employees with their personal taxes (such as a W4).

[Medlin Software, Dennis]

16 minutes ago, Abby Normal said:

If your HR department is unwilling to help their employees get the correct amount of withholding, they are not doing their job. The employee ultimately signs their W4, so it is ultimately on them.

 

HR should not normally (if at all) see a W4 form... Payroll sees W4, HR does not need it since HR is not calculating paychecks.  Same as HR does not see garnishments, unless there is more than one active (since more than one active can be cause for termination, while one active garnishment cannot).  Yes, many mix payroll and HR data, but these days, it is better to keep them separate, even if the same person handles both sets of records.