It's been two years since the Tax Cuts and Jobs Act (TCJA) because law, but folks are still adjusting to its many changes.
One area that's still a stumbling block is withholding.
The first year that TCJA's lower tax rates and adjusted income brackets were in place, some folks unexpectedly owed taxes at filing time. In most cases, that was because they didn't adjust their withholding to account for tax reform's changes.
Individual online withholding help: Since that public relations debacle, for both the Republicans who wrote the bill and the Internal Revenue Service which was tasked with implementing it, the tax agency has worked to get people to adjust their withholding.
There's a new W-4 form that takes into account the TCJA's changes and helps workers more accurately determine the withholding information they provide their employers.
Even better, there's an online tool, the Tax Withholding Estimator, that does the figuring for you.
Online withholding aide for employers, too: And now, the IRS is providing the same withholding calculating help to businesses.
The IRS says its new online assistant, dubbed the Income Tax Withholding Assistant for Employers, is designed to help employers, especially small businesses, easily determine the right amount of federal income tax to withhold from their workers' pay.
The new spreadsheet-based tool is designed to help employers easily transition to the redesigned withholding system, which is no longer based on withholding allowances, that goes into effect on Jan. 1, 2020.
It uses the info provided by employees using the new tax year 2020 Form W-4, Employee's Withholding Certificate.
The online option means that employers don't have to do manual withholding work, putting pen to worksheet and doing the tax math using either the percentage method or wage bracket tables found in Publication 15-T, Federal Income Tax Withholding Methods.
Old W-4 data will work: At the same time, says the IRS, the employer withholding assistant also can help in those cases where employees' withholding is based on an older version of Form W-4 that used withholding allowances.
"We've been working closely with the payroll community and other partners to make improvements in the withholding process," said IRS Commissioner Chuck Rettig in announcing the new withholding help for employers.
"As part of this effort and based on feedback from partners, the IRS has created a new spreadsheet-based tool that's designed to help small businesses navigate a variety of situations involving their employees to help ensure the right amount of withholding," Rettig said.
No-cost access now: To get started on getting their workers' withholding right, employers can download for free the new, Microsoft Excel based withholding assistant. It lets companies create for each employee a profile that automatically calculates the worker's correct federal income tax withholding.
The first step is noting in the Income Tax Withholding Assistant for Employers the worker's pay period frequency, such as weekly, bi-weekly, monthly or other time frame.
Next comes the information from the employee's Form W-4.
For the tool to work properly, the employer must indicate whether the employee submitted a new 2020 Form W-4, which does not base withholding on the number of withholding allowances claimed, or a prior version of the W-4, which does.
You can save a separate customized copy of the file for each employee containing that person's W-4 data.
Then, each pay period, the employer simply opens the employee's file and enters the worker's gross wage or salary amount for that pay period. The tool will automatically display the correct amount of federal income tax to withhold from that employee's pay.
If you're the boss and don't use an automated payroll system, check it out.
You also might find these items of interest:
- Year-end tax moves to help cut your business' IRS bill
- IRS issued almost 3 million fewer refunds under new tax law
- Tax relief — and refunds! — on the way to filers who faced underwithholding penalty