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HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 1 Copyright ©2019 DKG Media, LP. All rights reserved. HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 1 Copyright ©2019 DKG Media, LP. All rights reserved. Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 Presented by Dayna J Reum CPP, FPC [EMAIL REDACTED] and HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 2 Copyright ©2019 DKG Media, LP. All rights reserved. Agenda Form W-4 ◦W-4 Requirements ◦Electronic W-4s ◦Legislative Update-Tax Reform and the W-4 ◦Draft 2020 Review ◦Other W-4 guidance ◦Lock in letters ◦Substitute W-4 ◦Non Resident Alien W-4 Processing ◦Questions ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 3 Copyright ©2019 DKG Media, LP. All rights reserved. W-4 Requirements • New Hired Employees -All employees should complete a Form W-4 when they are first hired. - The completed form will stay in affect until the employee fills out a new valid form. An employee should complete a new form if their marital status, or allowances change, or if too much or too little is being withheld from wages. - If an employee does not complete and return a Form W-4 before the first pay period. The employee must be defaulted to Single and Zero for 2019 and Single with no adjustments in 2020. ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 4 Copyright ©2019 DKG Media, LP. All rights reserved. W-4 Requirements - Current Employee • Ask employees to update each year, but not required. • Tools for assistance • IRS.gov/w4app • Employers can provide the form in Spanish • Rules in Pub 17 • W-4 (SP) • Successor Employers • Employer should secure a new form W-4 • Unless the “Alternative Procedure” in section 5 of Revenue Procedure 2004-53 appliesIRS.gov/irb/ 2004-34_IRB/ar13.html • Electronic Form W-4 is allowed • Regulations section 31.3402(f) ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 5 Copyright ©2019 DKG Media, LP. All rights reserved. Electronic W-4 Requirements Electronic requirements are maintained by Section 31.3402(f)(5)-1(c) Employer can set up electronic W-4 system as long as below requirements are meet. The electronic system must ensure that the information received is the information sent. System must document all occasions of employee accessing the system and making form W-4 updates. The design and operation of the electronic system, including access procedures, must make it reasonably certain that the person accessing the system and filing the Form W–4 is the employee identified on the form. ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 6 Copyright ©2019 DKG Media, LP. All rights reserved. Electronic W-4 Requirements • The electronic filing must provide the employer with exactly the same information as the paper Form W–4. • The electronic filing must be signed by the employee under penalties of perjury. • Upon request by the Internal Revenue Service, the employer must supply a hardcopy of the electronic Form W–4 and a statement that, to the best of the employer’s knowledge, the electronic Form W–4 was filed by the named employee. The hardcopy of the electronic Form W–4 must provide exactly the same information as the paper Form W–4. ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 7 Copyright ©2019 DKG Media, LP. All rights reserved. Federal Tax Withholding-Form W-4-2019 Draft • Employees will not be required to complete a new Form W-4 • Changes • Elimination of number of allowances • New Marital Status- Head of household • New Line 5 Additions to Income (non-wage income) • New Line 6 Itemized and Other Deductions (estimated subtractions from income) • New Line 7 Tax Credits (ex Child tax credit, etc) • New Line 8 Additional Household Income Due to Multiple Jobs (income from second jobs) • Line 9 Additional Amount, If Any, You Want withheld each paycheck (not new) ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 8 Copyright ©2019 DKG Media, LP. All rights reserved. ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 9 Copyright ©2019 DKG Media, LP. All rights reserved. Final 2019 Form W-4 Changes • Changes to instructions on how to properly calculate out the correct withholding. • Wording changes ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 10 Copyright ©2019 DKG Media, LP. All rights reserved. ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 11 Copyright ©2019 DKG Media, LP. All rights reserved. • Released on May 31, 2019 • Comments accepted for 30 days • IRS will be releasing instructions mid August • IRS.gov/Pub 15-T will be expanded with the mid august release • Near Final Draft form is expected in mid to late July was released on Aug 8, 2019 • Changes included title change to remove allowances the new title is Employee Withholding Certificate. • IRS confirms no substantial changes will be made with final • Why IRS released near final draft • For payroll programs to begin preparing • Release of tax withholding estimator • • Final expected in November • Employers are not required to obtain a new form from employees. 11 Draft of 2020 Form W-4 ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 12 Copyright ©2019 DKG Media, LP. All rights reserved. Draft of 2020 Form W-4 • New hires • If a form is not submitted the employer is to put the employee at single with no other adjustments. • All employees who need to make a Form W-4 change after 1/1/2020 will be required to use the new form. • Non-resident alien adjustments will still occur how employers will do this will be released by the IRS in the employer instructions (Publication 15-T). 12 ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 13 Copyright ©2019 DKG Media, LP. All rights reserved. Draft of 2020 Form W-4 • Withholding calculation changes are not necessary as the IRS says the same withholding tables will be used for the old and new form. • The IRS will be issuing guidance on how this will work. • Proposed Changes • In new section 4 of the draft 2020 Form W-4, employees may optionally request other adjustments to their federal income tax withholding by entering dollar amounts for: • Additional nonwage income such as interest, dividends and retirement income • Deductions other than the standard deduction from income for the household, such as itemized or other deductions • Any additional amount of federal income tax the employee wishes to have withheld each payroll period • Unlike in the draft 2019 Form W-4, step 4 does not include the option to enter income from multiple jobs. Instead, the 2020 draft Form W-4 adds step 2 to the Form W-4 where employees are instructed to use the IRS calculator or the Form W-4 worksheets to estimate any additional withholding required and to enter that amount as "any additional amount you want withheld in each pay period" in step 4. 13 ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 14 Copyright ©2019 DKG Media, LP. All rights reserved. 2020 Draft W-4 Form 14 Draft # 1 5/30/2019 Draft # 2 8/8/2019 ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 15 Copyright ©2019 DKG Media, LP. All rights reserved. Draft 2020 Employer Calculations • When employees only complete step 1 and 5, employers will withhold using the appropriate method for the filing status and wage amounts. • Employees that complete steps 2-4, employers will need to take additional steps. • If an employee checks the box on line 2, the employer will calculate withholding from the higher rate tables. If an employee chooses one of the other two alternatives to account for multiple jobs, the additional withholding will be included with any other additional tax amounts for the pay period in step 4, Line 4c 15 ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 16 Copyright ©2019 DKG Media, LP. All rights reserved. Draft 2020 Employer Calculations • Amounts entered on line 3 (dependents) to claim employee dependents as an annual reduction of tax. Line 3 may be used to take into account other tax credits. • Any amounts in 4a (other income) will increase the amount of wages subject to withholding, 4b (deductions) will reduce the annual amount of wages subject to withholding. Amounts on line 4c will increase the withholding per pay period tax amount (old additional tax amount). • Line 4d is where employees claim an exemption from withholding (exempt) 16 ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 17 Copyright ©2019 DKG Media, LP. All rights reserved. Draft 2020 Employer Calculations • The IRS will have three withholding filing statuses, single, married filing jointly & head of household. For withholding calculation purposes the number of allowances for Married filing jointly is 3, single and head of household will be 2. • Withholding method tables are divided into two rates: • Standard: those with active W-4 before 2020 and those that complete a 2020 or later form where box in step 2 is not checked. • Higher: those that check the box in step 2 17 ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 18 Copyright ©2019 DKG Media, LP. All rights reserved. Draft 2020 Employer Withholding Worksheet • The employer withholding worksheet has 4 steps: • Step 1: Adjust the employees wage amount (employees annual wage) • Step 2: Figure the tentative withholding amount. This amount is calculated based on the employees adjusted pay period wage amount of adjusted annual wage, filing status ( Box 1c of the 2020 Form W-4 or Line 3 on previous forms) and whether the employee checks that box in step 3 of the 2020 draft W-4 Form. • Step 3: Account for tax credits claimed by the employee. • Step 4: Figure the final amount to withhold. Add in line 4a for any additional amounts. 18 ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 19 Copyright ©2019 DKG Media, LP. All rights reserved. Special W-4 Processing for Non-Resident Aliens • Nonresident alien employee's Form W4. When completing Forms W-4, nonresident aliens are required to: • Non Resident Aliens should review Notice 1392 before completing the Form W-4 • Not claim exemption from income tax withholding, • Request withholding as if they’re single, regardless of their actual marital status, • Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or South Korea, or a student or business apprentice from India, he or she may claim more than one allowance), and • Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W- 4. • If you maintain an electronic Form W-4 system, you should provide a field for nonresident aliens to enter non-resident alien status instead of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 20 Copyright ©2019 DKG Media, LP. All rights reserved. Non-Resident Alien Processing • Step 1. Determine if the nonresident alien employee has submitted a 2020 Form W-4 or an earlier Form W-4. Then add to the wages paid to the nonresident alien employee for the payroll period the amount for the applicable type of Form W-4 and payroll period. • If the nonresident alien employee started before 2020 and has not submitted a Form W-4 for 2020 or later, add the amount shown in Table 1 to their wages for calculating federal income tax withholding. ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 21 Copyright ©2019 DKG Media, LP. All rights reserved. Non-Resident Alien Processing • Step 2 Enter the amount figured in step 1 above earnings to get to the total taxable wages. (line 1a of the withholding worksheet that you use to figure federal income tax withholding. • The additional amount added is only for the federal tax withholding calculation only. These additional amounts are not reported on the Form W- 2. They are also not used when calculating the FICA taxes (Social Security and Medicare for the employee) ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 22 Copyright ©2019 DKG Media, LP. All rights reserved. W-4 Submission to IRS Changes & Lock in Letters • Old regulations required employers to send W-4 that claim more then 10 and exempt to the IRS with there 941’s. As of April 14, 2005 this requirement has been eliminated. • Private “lock in” letter rulings that are sent to the employer’s are still required to be implemented. • Lock in letter requirements for employers • Provide the employee copy of the lock in letter within 10 business days of a receipt if the employee is employed as of the date of notice. • Begin lock in letter as of effective date in the notice • Must withhold on rehires that come back within 12 months after termination ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 23 Copyright ©2019 DKG Media, LP. All rights reserved. Lock in Letters • The IRS can modify the lock in letter, but they will notify the employer of the modification. • Employers should disregard any modification that the employee makes to the Form W-4 given by the employee except in the situation that an employee claims less allowances then the IRS lock in letter indicates. ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 24 Copyright ©2019 DKG Media, LP. All rights reserved. Communication Plan • Most significant change to the Form W-4 since the early 40’s. • Americans are not prepared the completing the Form W-4 in a completely different method. • To avoid employers and payroll departments getting a lot of question by employees that employers are not to answer communication will be key. • With the required Dec 1 W-4 communication • Provide the new From W-4 with the employee’s W-2 • Provide employee’s with the IRS tools such as www.irs.gov\W4app ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 25 Copyright ©2019 DKG Media, LP. All rights reserved. Substitute W-4 Forms • The IRS encourages employers to use the IRS approved Form W-4 • But…the IRS does allow for a substitute Form W-4 if certain requirements are meet. • Must contain language that is identical to the official form W-4 • The employer form must meet all requirements of the IRS rules for substitution. • At the time the substitute form is provided to the employee all tables, instructions and worksheets from the current W-4 must be provided. • Only employee substitute forms created before October 11, 2007 can be used, all others should be denied. ---PAGE BREAK--- HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 26 Copyright ©2019 DKG Media, LP. All rights reserved. HRWebAdvisor Webinar: Final New Form W-4 and How to Calculate Income Tax Withholding in 2020 26 Copyright ©2019 DKG Media, LP. All rights reserved. Questions? Dayna J. Reum CPP, FPC [EMAIL REDACTED]