W-4 issues

[artp]

I may be "old school" but I find it difficult to assist clients with questions concerning how to fill out this form and more importantly how to know in advance how much tax will actually be withheld before they submit it. With the old W-2 form and exemption tables it was fairly straight-forward. Now, unless you have a payroll tax software in house that will accept the new W-4 tax form inputs you are guessing what the result will be. I find many company's payroll processing is not done in-house so it is difficult to run what-if options. For example, if a significant bonus is to be included in their next pay check how do you calculate the withholding and make adjustments before it is processed? I find most HR personnel are not very helpful and the IRS instructions are not much better. Anyone have practical suggestions?

[Lee B]

I do live payroll processing, so I do have access. The difficulty lies with 2 wage earner situations and situations with significant bonuses.

Unless the client is willing to pay me a fee for a next year's tax projection,which very few will do, I just hand them the W 4s  and point them to the instructions.

I used to give clients some guesstimated advice, but ever since the TCJA went into effect that doesn't work very well and has backfired on me a few times.

[Abby Normal]

The IRS has a page to calculate the W4. I personally like the new W4.

What I tell my clients is the percentage that they need to have withheld to breakeven. Then they can look at their pay stub and see if they are having about that percentage withheld.

[Lee B]

1 hour ago, Abby Normal said:

The IRS has a page to calculate the W4. I personally like the new W4.

What I tell my clients is the percentage that they need to have withheld to breakeven. Then they can look at their pay stub and see if they are having about that percentage withheld.

How does that help, there is no W 4 provision to have a% withheld?

[Medlin Software, Dennis]

A pct is worse than silence. Gives the tp nothing accurate unless that have zero changes for the new year, and even then, it is useless because it does not factor the inflation adjustments. 

[Abby Normal]

15 hours ago, Lee B said:

How does that help, there is no W 4 provision to have a% withheld?

It only helps if they can do basic math.

[Medlin Software, Dennis]

8 minutes ago, Abby Normal said:

It only helps if they can do basic math.

You are expecting someone to monitor each of their paychecks?  Someone who is not capable of preparing their own return?  How about the clap back from the employer you are causing when the employee nags at the employer to withhold your magic percent?

While still not professional (to me), looking at the liability for the ended year is reasonable, as is suggest the employee to make sure at least that amount is withheld for the current year, is reasonable to avoid penalty. Some magic percent is random, unless the goal is to be able to show how much refund you were able to make appear.

What is accurate is to give a starting W4, and review in Sep or Oct to see if anything can be changed to get closer to 0 refund/owed. I do not believe in using a refund as a piggy bank.

As I have been shown here, most preparer types do not want to get involved in W4. That is great too, freedom of choice and all. Flat % suggestion, to me, is a "here you go, now go" type of response, which has zero to do with accuracy for the upcoming year.

The now several year old W4 is MAGIC for those of us who use it to the fullest.  One can enter enough 4b, and 4c to do what some call holy grail, a fixed dollar amount per check.  Now THAT is more likely to be accurate than some sort of constant monitoring for meeting a %.

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This is a huge issue for me, as I have shared often. Employees get the flat % from someone, and demand the employer comply. Some will even write it on their W4. While a flat % may be the end liability, as anyone can calculate after the fact, it does nothing for the employee, and when the employee tries to get the employer to comply, causes a headache for the employee and employer.

[Lee B]

It's ironic since W 4V allows you to choose 7%, 10%, 12%. or 22% to be withheld from your monthly social security check.

If you want taxes to be withheld from your RMD you get to choose a pecentage for both federal and state tax to be withheld.

[Medlin Software, Dennis]

6 minutes ago, Lee B said:

It's ironic since W 4V allows you to choose 7%, 10%, 12%. or 22% to be withheld from your monthly social security check.

If you want taxes to be withheld from your RMD you get to choose a pecentage for both federal and state tax to be withheld.

No more mor "ir" onic than the IRS feeding 941 forms into scanners - still.

There is no way we will ever get to any flat federal handling, as it could lead to the mythical postcard return, and a loss of tens of thousands of j o b s.

[Abby Normal]

It's called adulting.

[Medlin Software, Dennis]

18 minutes ago, Abby Normal said:

It's called adulting.

Agree. I will not agree a professional giving an unusable % is professional. Such advice costs the employee time/money to try to figure out, and likely costs the employee goodwill with their employer if they present the "professional" percent and demand the employer comply. I have had those arguments, and know how it works. "My preparer says to withhold this %, make it so, or I will raise a stink". Then, the employer contacts me, the software person, and asks how to get the employee off their back.

Do you professionally believe a person, who is not capable of their own tax prep, and is not capable of filling in a W4, is capable of handling a flat % WITHOUT pissing off their employer?

[kathyc2]

22 hours ago, artp said:

With the old W-2 form and exemption tables it was fairly straight-forward.

They still publish the tables and formulas in Pub 15T.  If the pay is consistent from pay period to pay period you should be able get close as to what withholding will be.  If pay varies widely it's much more difficult. 

[Medlin Software, Dennis]

3 minutes ago, kathyc2 said:

They still publish the tables and formulas in Pub 15T.  If the pay is consistent from pay period to pay period you should be able get close as to what withholding will be.  If pay varies widely it's much more difficult. 

The calculation/tables are for the employer to meet their legal requirements. They have NOTHING to do with taxpayer liability, especially so since 2020. Really, it is to a point where the calculations/tables could go away, with a "no W4, 25%" type of deal, and let employees to withhold using a dollar amount or pct each pay period, or better yet, a dollar amount or pct for the year.

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I will share what I give as advice. It is easy to calculate what will avoid penalty. I go with 100% of the prior year. One could elect the other option(s), but this one is clean. Divide by paydays per year. Give that number as the minimum amount they should see on each check. If their check shows too little, add/increase the additional amount on their W4. These are things any employee can do.  No need to alter anything on their W4 but the additional.

If they want to let the IRS be their piggy bank, they can add whatever per paycheck amount they wish as additional. If they want to keep it closer, they can self monitor their estimated liability and leave me out of it.

[kathyc2]

5 minutes ago, Medlin Software, Dennis said:

The calculation/tables are for the employer to meet their legal requirements. They have NOTHING to do with taxpayer liability, especially so since 2020.

Say what????  Those of us who understand how they work can use the formulas to calculate what the withholding will be based on the W4.  

Clients want different things.  Just this afternoon I had a gal with a balance due of around $600 federal.  She doesn't want to have a balance due whether there is a penalty or not.  Just told her to have an extra $15 a week withheld so next year should be close to break even.

Another young couple had a 13K refund.  It's due to withholding and not refundable credits. Asked if they wanted to adjust W4 to have a smaller refund, and the answer was no, they want the big refund.  Not what I'd do, but it's their money.

One thing we should all do is when a dependent is turning 17 or graduating college give them a heads up how that will affect next year.  

[Medlin Software, Dennis]

16 minutes ago, kathyc2 said:

Say what????  Those of us who understand how they work can use the formulas to calculate what the withholding will be based on the W4.  

Clients want different things.  Just this afternoon I had a gal with a balance due of around $600 federal.  She doesn't want to have a balance due whether there is a penalty or not.  Just told her to have an extra $15 a week withheld so next year should be close to break even.

Another young couple had a 13K refund.  It's due to withholding and not refundable credits. Asked if they wanted to adjust W4 to have a smaller refund, and the answer was no, they want the big refund.  Not what I'd do, but it's their money.

One thing we should all do is when a dependent is turning 17 or graduating college give them a heads up how that will affect next year.  

If you believe the employer's withholding obligation (15T) has ANYTHING to do with the employee's tax liability, I have a deal on a bridge for you.

[kathyc2]

9 minutes ago, Medlin Software, Dennis said:

If you believe the employer's withholding obligation (15T) has ANYTHING to do with the employee's tax liability, I have a deal on a bridge for you.

But is has everything to do with how much of their liability is paid in during the year. 

The original comment was that the tables are no longer available.  Simply pointed out that they moved to a new pub.  You seem to be itching for a fight, so I'm done.  

[Medlin Software, Dennis]

The itch is for those who give W4 advice not to lazy out and give some unusable percentage of income. I get it, perspective, the pct is likely close, but yet, unusable by the employee.  At a preparer, you likely cannot even be sure what method the employer uses (there is software which allows/requires the employer to maintain calculations, so one cannot assume employers are accurate). And even if you can prove the employer is not doing things correctly, as is the consensus here, every time, making waves with the employer is not something to suggest.

So indeed, a flat % suggestion is a huge peeve of mine, and of every employer who deals with the employee who wants a flat rate. That is why it, assuming not wanting to get involved with actual W4 prep (which I asked here before, and the consensus was not to do it, as a tax preparer), it is cleaner and more helpful to give a number to meet, either through WH or direct deposits, and let the employee figure it out. If you want to be thoughtful, give a formula showing the amount divided paydays per year to compare against what their employer withholds.

 

[Medlin Software, Dennis]

"This is XX at YY my customer number is Customer ID ##. One of my employees are saying that the withholding is incorrect on your program. Her accountant  is stating that there was not enough federal income tax taken out. They are stating there was only 1 percent taken out. They are stating is needs to be ten percent. I updated the last update and all the previous ones."

This is a direct message I received, about a week ago (redacted to protect the identity), more than THREE years after the W4/withholding fiasco from 2020.

The above is a fair example of the you know what an accountant, preparer, "someone told me" causes when they invoke the flat % nonsense.  In the above, the "accountant" (I have no way to verify) is talking what must be effective liability, versus what an employer can use for WH.  Of course, they could also be\ -, sadly - talking about "tax bracket", which is even farther removed from actual liability. Doubled down that the "accountant" is implying there is a flat % calculation anywhere in wage WH (exception for supplemental, which does not apply here).

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The result?  The employer wants nothing to do with the issue, and wants to keep their employee happy, so they blame me for not WH accurately. Does not matter that I can prove the calculations I build in are perfect for any paycheck and employee parameters.

[Sara EA]

The current W4 essentially asks the taxpayer to complete next year's tax return this year and is a disaster.  Does it even account for the additional Medicare tax when one spouse is over the threshold and having the extra taken out but the other isn't?  When there is glaring underwithholding, I tell clients to put Single, zero exemptions on the W4 and leave the other lines blank.  (Not many want their employer to know what their spouse earns or their other sources of income.)  Then we'll look at it at the end of the year and adjust accordingly.

[mcb39]

14 hours ago, Sara EA said:

The current W4 essentially asks the taxpayer to complete next year's tax return this year and is a disaster.  Does it even account for the additional Medicare tax when one spouse is over the threshold and having the extra taken out but the other isn't?  When there is glaring underwithholding, I tell clients to put Single, zero exemptions on the W4 and leave the other lines blank.  (Not many want their employer to know what their spouse earns or their other sources of income.)  Then we'll look at it at the end of the year and adjust accordingly.

I totally agree with this for at least one year.  It has been working out very well for our clients.

[Medlin Software, Dennis]

Single with no other notations (there is no "allowance" count on the current form) is wise for the first month.  Then, review, compare against the desired WH per paycheck, and if different, use a new Single W4, with any desired adjustments to deductions or additional income.

For those who cannot or will not let go of the "allowance" settings/comparisons from the past, the "implied" allowances are 0 for two jobs, 3 for married joint, and 2 for all other selections.  THIS is why so many under withhold. Anyone who used to claim lesser allowances for their status selection is likely to under withhold.

[kathyc2]

1 hour ago, Medlin Software, Dennis said:

Single with no other notations (there is no "allowance" count on the current form) is wise for the first month.  Then, review, compare against the desired WH per paycheck, and if different, use a new Single W4, with any desired adjustments to deductions or additional income.

For those who cannot or will not let go of the "allowance" settings/comparisons from the past, the "implied" allowances are 0 for two jobs, 3 for married joint, and 2 for all other selections.  THIS is why so many under withhold. Anyone who used to claim lesser allowances for their status selection is likely to under withhold.

I assume you are talking about the 12,900 for MFJ and 8,600 for others that needs to be subtracted from wages to use the box not checked tables in Pub 15T.  That is not even close to being the same as claiming 2 or 3 exemptions on the old W4.

It's not that difficult to calculate what the withholding will be depending on how W4 is completed.  Certainly don't need to just take a blind stab to see what withholding will be for a month.  

[Medlin Software, Dennis]

1 hour ago, kathyc2 said:

I assume you are talking about the 12,900 for MFJ and 8,600 for others that needs to be subtracted from wages to use the box not checked tables in Pub 15T.  That is not even close to being the same as claiming 2 or 3 exemptions on the old W4.

It's not that difficult to calculate what the withholding will be depending on how W4 is completed.  Certainly don't need to just take a blind stab to see what withholding will be for a month.  

The calcs for 2020 or later W4 have implied allowances (to use the prior term). 4300 each, depending in the selected status. It is how the IRS handled the silly rules which prevented employees from submitting a new W4. Likely an employer lobby mandated item (to presumably "save" work for the employer, which we all found out was untrue).

The issue I have is not with calculations, we can all do them. It is with giving unusable information, specifically telling a client they need a magic percentage withheld.

I am not promoting a blind stab, I am suggesting let the employee fill out the W4 however they wish (as it has been proven, at least for this group, helping with the W4 form is not being offered/done). Then, using simple math of desired amount to withhold for the year, divided by paydays per year, give them the actual dollar amount they need to be aiming for - and let them adult. An actual dollar amount per check, which takes seconds to calculate and write down, is useful information, a flat % is not.

[kathyc2]

Formulas before redesign always had a cushion built in for 1 exemption.  Some yahoo at Treasury decided to take away the cushion.  I knew at the time it wasn't going to be going over well.  

So, before redesign the simplest situation of single no income other than wages was pretty much guaranteed a small refund by claiming Single and 1 exemption.  Usually marginal rate times that years personal exemption amount.  

Since they took away the cushion with new form that person will break even.  Then if they have a few hundred of investment income they owe. 

 

[Medlin Software, Dennis]

I have no direct knowledge, but I doubt the people responsible for publishing the calcs do so without direction from the higher ups. In the case of 2020, we had a POTUS who was in the news saying what he had done to increase net pay. 2020 was not the first time the calcs were slimmed, but it was the first time there was, and remains, a significant percent - who use only the base options on the W4 - will be under withheld.

Indeed, I am an oddball, as I have been managing my WH since my very first $2.35 an hour job. I had some inane understanding that getting a refund meant I was loaning money for free, and how WH stuffed into Dec is considered timely.