New Withholding Tables & the new W4

[Abby Normal]

I download Pub 15-T to see what they did with the withholding tables. It has both the old W4 method and the new.

The old W4 is basically the same with a standard deduction of 3,800 for single plus 4,300 per allowance, so that claiming single 2 gets you to an annual exclusion of 12,400, exactly the 2020 standard deduction.

The new W4 tables don't have an annual table, so I used the monthly table for single without the 'two jobs' box checked on the W4, and the standard deduction amount is 1,033. Times 12 = 12,396. If you check the box for two jobs, it cuts the standard deduction amount in half (517 x 12 = 6,198).

I wish they had built a little cushion into the new tables by using, say 10,000 for the standard deduction because I'm afraid this is going to cause a lot of people to be under withheld, especially hourly workers with varying hours.

I'm going to recommend that people enter extra withholding on the new W4 more often than not, so they don't get mad at me when their refund is a lot smaller or nonexistent.

[Medlin Software, Dennis]

The actual calculations did their "norm", adjust based on the number pulled out of some hat.  The parameters allow the old W4 form, as well as the new.  The new W4 form, while not specifically stated now (the original proposal, for 2019, was - shock - more clear) has "implied" allowances based on status.

IMO, the IRS was stuck/capitulated/whatever.  They did not have the impetus to create simple stand alone calculations, as they did not want to require new W4 forms, and they know there are other tax agencies (such as states) which rely on some part of the federal process (W4 form, "allowance" figures, etc.).

While "it is what it is", making the process to claim exempt such that the employee must properly add a hand written notation (versus the old form which was any hand written notation invalidated the form).

[Medlin Software, Dennis]

20 hours ago, Abby Normal said:

I wish they had built a little cushion into the new tables

This is the "thing".  Those we elect have now cut withholding to the smallest amount they can stomach (meaning what their pollsters/advisors say they can get away with) in a relatively (sadly) successful attempt to fool voters into believing they are the "one" who increased their income.

It is, and has been for several administrations, a game of chicken, rather than any attempt at being accurate.  The administration lost for TY 2018, proved by having to widen the under withholding limit to keep "regular" folks from the penalty.

It is well past the point where the withholding process is accurate enough for even some.  All should decide on a reasonable liability for the year, then d whatever it takes to get to that point, even if it means making deposits personally.

Some employees even play the game right back at the PTB, with little or no WH until Q4, and during Q4, having enough WH or deposits to stay out of penalty...

[Medlin Software, Dennis]

Ugh.  Just venting that it is not my fault the IRS did away with allowances.  Just got a nasty gram from a customer (owner/employee) who wrote me to ask why the %^*%^&(* could they not change their allowances to 20 like they do at the beginning of every year (to have no WH until later in the year).

Have had several nice folks ask also, but they were employee requests on the old form, and they had not noticed there was a new form (despite several emails from me).

[Abby Normal]

Has anyone tried entering negative other income to see if their payroll software balk or actually work with the new system? I haven't tried it in QB yet, because once you switch someone, you can't go back. It's like herpes. It's forever. Well... at least until this all gets redone again sometime.

[Medlin Software, Dennis]

41 minutes ago, Abby Normal said:

Has anyone tried entering negative other income

I do not allow negative items in the W4 fields.  If someone wants to lower WH, they can add to the deduction field.  The employer does not have to give any thought as to whether or not a W$ is "reasonable", just that it is not invalid.  There are online test programs where anyone can "run" a sample check with various parameters, should they want to get a specific outcome.

[Lee B]

The payroll program that I use for my larger clients does not allow negative other income to be entered .

[Abby Normal]

And the only way to claim exempt is to write 'exempt' in the blank space after line 4(c), which means that most kids working will likely have to file to get refunds because when they complete their W4, they won't know to do that.

I think it was HUGE mistake to not have a line on the W4 for those who expect to make less than 12,400, or have enough EIC to pay their taxes, to claim exempt from withholding. Such a line would make everyone's life easier. It's a tremendous waste of effort to have to file for a refund and for the IRS to have to issue refunds for all those part-timers and seasonal workers with no dependents who make less than the standard deduction.

[Medlin Software, Dennis]

17 minutes ago, Abby Normal said:

I think it was HUGE mistake to not have a line on the W4

I think it was a very thought out decision, to make it tougher for people who should not be exempt from claiming such.  Not saying I agree, as I am very much against the new implementation, where the former "manual notations make it VOID" process is replaced by directing some to make manual notations.

I think the removal of the exempt box falls right in line with the removal of "advance" EIC.  Fraud reduction.

But, I nave found nothing which says someone cannot put 100k in the "deduction" box, to eliminate or lower their withholding.  Unless someone comes along and claims such an entry would require it to be forwarded to the IRS, this is a better way to have zero withholding, as it does not require a new "exempt" form each year.  Remember, employer no longer has to think about what the entries are, as long as the form is valid...  If an employee tells me why they put in 100k in deductions, and it makes sense, I would probably memorialize the conversation in writing, signed by the employee, and let the employee be responsible for themselves.

[jklcpa]

13 minutes ago, Medlin Software said:

Remember, employer no longer has to think about what the entries are, as long as the form is valid...  If an employee tells me why they put in 100k in deductions, and it makes sense, I would probably memorialize the conversation in writing, signed by the employee, and let the employee be responsible for themselves.

If, as you've stated over and over, the employer should take no responsibility beyond knowing that the form isn't invalid, then why would the employer be involved in the 100K discussion at all or be memorializing the conversation?  By your phrase "and it makes sense" it sounds as if you are suggesting that the employer is to evaluate the entries, not for validity of an acceptable entry on any given line, but to rate it as to their effect on the resulting withholding. Is that what you intend?  In the case of the 100K of deductions, why isn't the employer still totally uninvolved, and why isn't the signed and dated W-4 enough?

[Medlin Software, Dennis]

Great question.  The reason I might memorialize it, is because while (so far that I can see) not disallowed, it is highly unusual, and because I know enough to know the reason for such an entry is likely (could be legal, might be a horrible mistake) tax shifting.  The reality is, employees do blame their employers when they have a due bill, and an "out there" W4 should raise an eyebrow, even when valid.  Could be the record is simply that I asked the employee are you sure?, I don't know, because I am not the average employer.

I suppose this falls into me seeing things from several sides, with my default being from my work side.  I should remember to include which view I am coming from in my messages.

(I have had a rash of owner/employees asking me how to change their federal allowances, since it is no longer needed or allowed in my software, and since many owner/employees fail to keep themselves separate, such as collecting a W4 from their employee self and giving it to their employer self.  Thus, the discussion of the options - with no specific advice - on the new form is very up front for me at present.)

So what I would tell am employers is directed only from the employer position.  Accept valid forms only.  From the overall view, a valid form can be "out there", yet still be valid, so an employer may want additional CYA either verbal or written, even if not required.

The flaw or gap in withholding is an employee does not have to meet the same standard as SE with quarterly deposits.  Employees are considered good if they have withheld and/or deposit, enough by the Q4 deposit deadline.  In theory (all I will admit to) if an employee can provide a valid W4 which causes no WH, yet make an appropriate deposit by the Q4 deadline, they can do what others suggested, zero withholding, make their own deposits.

[BLACK BART]

Just had my first two W-4 inquiries in yesterday and, as expected, employer told them "We're  only allowed to answer two or three questions about that; your tax advisor will have to do the rest".  Talk about a cliche that's been beaten to death.

 

[Jack from Ohio]

4 hours ago, BLACK BART said:

Just had my first two W-4 inquiries in yesterday and, as expected, employer told them "We're  only allowed to answer two or three questions about that; your tax advisor will have to do the rest".  Talk about a cliche that's been beaten to death.

 

Income opportunity????

[Medlin Software, Dennis]

Who should be giving someone tax withholding / tax liability advice other than their tax expert / tax preparer?  I posed this earlier as an income opportunity / customer acquisition / customer retention opportunity, which seemed to be a "not interested" by several.

[BulldogTom]

1 hour ago, Medlin Software said:

 which seemed to be a "not interested" by several.

I am not interested.   There are way to many variables in the outcome of a tax return.   Withholding is just one of them.  If I take on a new client because I helped them out with the W4, and next year the result is not what they wanted, I have an unhappy client.   In order to make this work, I need to know everything that might go into the client's return, including what they might change from the prior year into the new year.   I have a hard enough time trying to keep my regular clients (you know, the guy who told me he was going to semi-retire this year and then had the best year his sole proprietorship ever had!) who I know happy.   Bringing in a client based on projecting their next year return is just not enough reward for the hassle.   So yeah, I am not really interested.

Not taking a shot at you Medlin, just giving the explanation as to why this suggestion is not for me.

Tom
Modesto,, CA

[Medlin Software, Dennis]

Tom from the Valley,

I understand completely.  Not all would be interested.  I can absolutely accept that position.  What I cannot accept is then the tax expert tries to decline by stating it is the employER's responsibility to help their employee.

If I were helping W4 prep for cash (which I already do for friends family for free), I would limit my "help" to setting WH to 100% of prior year (no under WH penalty), or to meet some other magic number the employee provides.

[BLACK BART]

On ‎1‎/‎21‎/‎2020 at 1:55 PM, Jack from Ohio said:

Income opportunity????

 

22 hours ago, BulldogTom said:

...next year the result is not what they wanted, I have an unhappy client.   In order to make this work, I need to know everything that might go into the client's return, including what they might change from the prior year into the new year.   I have a hard enough time trying to keep my regular clients (you know, the guy who told me he was going to semi-retire this year and then had the best year his sole proprietorship ever had!) who I know happy.   Bringing in a client based on projecting their next year return is just not enough reward for the hassle.   So yeah, I am not really interested...

Here's the most likely outcome.