New 2020 W4 forms for employees
Hi all, Happy New Year! I'm getting ready for my one payroll client's 2020 files, etc., and ordered the IRS forms I use at year-end in early Dec. I ordered W4 forms for his employees and apparently the IRS came out with new W4 (after 12/16/19) forms to comply with the new tax regulations for Fed. withholding. This client is a racehorse trainer, and his highest paid employee usually earns less than $50,000 a year. Upon reading the new W4 for 2020, I'm a bit (embarrassed to say) confused on how to explain this to my client, who in turn has to explain how to fill this out to all his (10) employees, most of whom earn less than $30,000/year and don't speak English as their first language. It appears that if you are a high income earner or you or your spouse have more than 2-3 jobs and make a combined income of $120K you would have to fill this out in more detail to claim additional withholding allowances. I'd love to hear comments from anyone that has read through this thing. I know these folks will be flummuxed by the new form, as they have children and are used to claiming dependents.
Any help or advise is appreciated. I'm grateful for this group!
Cheers! Helen Lee-Bryant
I've always been flummoxed with W-4 forms. I've never paid attention to their directions. Instead, I've manually figured what our gross income will be (filling out a 1040) and gone down the 1040 filling it out. Once I get to the amount due or amount of refund, then I know what I need to do as far as whether I need to pay in more (have more withheld out of paycheck or pay in via 1040-ES), pay in less, or leave it as it is.
The IRS has a tax withholding estimator at their website that one can use. It will guide you through the process and recommend what to do on the new W-4. Link below and video of how to fill it out below that:
If they were my client and some of their employees didn't know what to do I'd advise the client that I could assist in helping them complete the W-4 and offer to meet with the employees, individually, for a brief consultation to assist them. However, they'd need to bring their most recent paystubs and last year's tax return with them. We could go from there. ( I prepare taxes, federal and state, as well as do bookkeeping)
Happy New Year! Hope this one is a profitable one for you.
thanks Casey, I know that I'll be asked by the client how to explain this new form to his employees, and I'm embarrassed to say that I don't know. Thought I'd check with the group and find out if anyone had any input. Appreciate your answer.
If you are using QB, there are now 2 drop down boxes you have to pick from when inputting the W4 information. 2019 and prior and 2020 new form. When you use the 2020 W4 forms, you literally plug in and match what the 4 boxes that show on the new W4 form state. There is also a link that helps people figure this out. It's below. Hope this all helps.
Thank you for this information Cynthia. I haven’t added any new employees yet this year, but I did go to the IRS website and try out the withholding estimator. Because my income is from Social Security and self-employment I had to trick it into letting me use it, it wanted W2 or pension income numbers to be able to use the estimator. So basically, to use the estimator, you have to gather your 2018 tax return and estimate all of your 2020 income, dividend (interest, etc.) income, self employment income, what your deductions will be, etc. before deciding how much Federal income tax you want withheld from your pay for the year. Can’t imagine how this will be a problem for any of us out there processing payroll and asking employees to give us guidelines on how much tax to withhold (snark intended). Whew!!!
So basically, to use the estimator, you have to gather your 2018 tax return and estimate all of your 2020 income, dividend (interest, etc.) income, self employment income, what your deductions will be, etc. before deciding how much Federal income tax you want withheld from your pay for the year
Yes, this is what is required to get an accurate estimate of one's tax liability for the year. This is what I do for my wife and myself every year (she has a pension and I have social security and we both have investment income). My question is - can a bookkeeper do this for an individual to help them or is this considered "rendering tax advice" and prohibited by anyone except the individual and a CPA or EA?
I expect the answer is that this is considered rendering tax advice and is prohibited by anyone other than a CPA, EA, or lawyer, or a CFA. But, I would like others' opinions. I am a tax preparer with a PTIN, but I am not certified to do tax returns and can''t represent anyone before the IRS.
What Casey said makes sense:
Personally, I don't give any advice on how to fill out the W4 form. I advise them if they have questions to check with their CPA or Tax preparer."
Thanks everyone for your answers. Unfortunately, this has created a large mess for employers and employees. I’ve printed out the IRS FAQ sheet for this new W4 and will send it to my client to give his barn manager (he trains racehorses) and I’m sure they’ll all come back to me to explain it. I don’t do income taxes and reading through this mess gives me a headache, can’t imagine how this will go down with employers. Thankfully Intuit’s Enhanced Payroll allows you to choose the 2019 or 2020 W4 when you set up a new employee.
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