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How does this new employee withholding W-4 form work?

Five Step Process in place of Exemptions:

Form W-4, Employee’s Withholding Certificate, has been redesigned for 2020. Previously, income tax withholding was based on an employee’s marital status and withholding allowances or tied to the value of the personal exemption. With the revised Form W-4, however, income tax withholding is generally based on the worker’s expected filing status and standard deduction for the year. Furthermore, workers can also choose to have itemized deductions, the Child Tax Credit, and other tax benefits reflected in their withholding for the year.

The redesigned Form W-4 makes it easier for withholding to match tax liability. While it uses the same underlying information as the old design, it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees.

Here’s what taxpayers should know about the new Form W-4 for 2020:

Five Steps

The form is divided into 5 steps. The only two steps required for all employees are Step 1, where you enter personal information such as your name and filing status, and Step 5, where you sign the form. The form is not valid unless it is signed and dated by the employee. Taxpayers should only complete Steps 2 – 4 only if they apply to your tax situation because doing so will make your withholding more accurately match your liability.

New Employees

All new employees starting employment in 2020 are required to fill out the new Form W-4; however, employees who have furnished Form W-4 in any year before 2020 are not required to furnish a new form merely because of the redesign. Employers will simply continue to compute withholding based on the information from the employee’s most recently furnished Form W-4.

*Employees with a change in life events such as marriage, buying a house, or the birth of a child, however, may want to fill out the form, however.

More than One Job

It is important for people with more than one job at a time (including families in which both spouses work) to adjust their withholding to avoid having too little withheld. For most taxpayers, using the Tax Withholding Estimator located on the IRS website is the most accurate way to do this, although they may fill out the Multiple Jobs Worksheet found in the instructions instead.

If a spouse works both should check the box on their respective Forms W-4; however, only one spouse should fill out the rest of the form (i.e., Steps 3 and 4). If not, and both spouses claim the child tax credit, for example, it is possible that not enough will be withheld and they will owe money at tax time.

*Withholding will be most accurate if the highest paid spouse completes Steps 3 – 4(b) on the Form W-4.

Additional Withholding

As in the past, employees can also choose to have an employer withhold an additional flat-dollar amount each pay period to cover, for example, income they receive from the gig economy, self-employment, or other sources that are not subject to withholding.

If you have any questions about tax withholding, need assistance filling out the redesigned 2020 Form W-4, or would like more information about this topic, please call.

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Didn’t Receive PPP funds? Additional Assistance Programs Exist…

Before you file your 2nd Quarter Payroll Tax Reports, check out the Employee Retention Credit!

Businesses that have been impacted financially by COVID-19 may be able to take advantage of a new, refundable tax credit called the Employee Retention Credit. The credit is designed to encourage businesses to keep employees on their payroll and is worth 50 percent of qualifying wages up to $10,000 that are paid by an eligible employer.

Does my business qualify for the Employee Retention Credit?

  • The credit is available to all qualified employers regardless of size, including tax-exempt organizations.
  • The credit is not available to small businesses who take small business loans or state and local governments and their instrumentalities.

What is a qualifying employer?

There are two categories of qualified employers:

  • The employer’s business is fully or partially suspended by government order due to COVID-19 during a calendar quarter.
  • The employer’s gross receipts are below 50 percent of the comparable quarter in 2019. Once the employer’s gross receipts go above 80 percent of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

How is the credit calculated?

The amount of the credit is 50 percent of qualifying wages paid up to $10,000 in total. Wages taken into account are not limited to cash payments, but also include a portion of the cost of employer-provided health care. Qualified health plan expenses generally include both the portion of the cost paid by the employer and the portion of the cost paid by the employee with pretax salary reduction contributions. Amounts paid by the employee with after-tax contributions are not included.

What is a qualifying wage?

Qualifying wages are wages that are based on the average number of a business’s employees in 2019. There are two different measures for business, depending on size:

  • Employers with less than 100 employees. If the employer had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full time and were paid for full-time work, the employer still receives the credit.
  • Employers with more than 100 employees. If the employer had more than 100 employees on average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.

How do I receive the credit?

While many tax credits are available when filing a tax return, the employee retention credit works differently in that employers can be reimbursed immediately by reducing their required payroll tax deposits. Payroll taxes, which include federal income tax withheld as well as taxable social security wages and tips, taxable Medicare wages and tips, and additional Medicare tax withholding, are taxes that have been withheld from employees’ wages. Generally, these payroll tax deposits are filed quarterly on Form 941, Employer’s Quarterly Federal Tax Return.

When can I start reporting qualified wages?

Eligible employers should report their total qualified wages and the related health insurance costs for each quarter on Form 941 beginning with the second quarter (March 12, 2020).
Wages paid through December 31, 2020, are also eligible for the credit.

What if my payroll tax deposits are less than the credit?

If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19

Help is just a phone call away.

Please contact the office if you need more information on the Employer Retention Credit and other COVID-19 economic relief efforts.

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Estimated Tax Payments Delayed until July 15, 2020!

As a reminder, taxpayers now have until July 15, 2020, to file and pay federal income taxes originally due on April 15 and no late-filing penalty, late-payment penalty or interest will be due. Due to the coronavirus pandemic, this relief has been expanded to include additional returns, tax payments and other actions:

  • All taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020.
  • Individuals, trusts, estates, corporations and other non-corporate tax filers now qualify for the extra time.
  • Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due.

Extension of time to file beyond July 15

  • Individual taxpayers who need additional time to file beyond the July 15 deadline can request an extension to October 15, 2020, by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.
  • Businesses who need additional time must file Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.

!An extension to file is not an extension to pay any taxes owed. Taxpayers requesting additional time to file should estimate their tax liability and pay any taxes owed by the July 15, 2020, deadline to avoid additional interest and penalties.!

Estimated Tax Payments

Relief is also extended to estimated tax payments due June 15, 2020. This means that any individual or corporation that has a quarterly estimated tax payment due on or after April 1, 2020, and before July 15, 2020, can wait until July 15 to make that payment, without penalty.

Unclaimed Refunds

There is a three-year window of opportunity to claim a refund from prior years’ tax returns. If taxpayers do not file a return within three years, the money becomes property of the U.S. Treasury. For 2016 tax returns, the normal April 15 deadline to claim a refund has also been extended to July 15, 2020.

If you have any questions regarding the coronavirus pandemic and your taxes, help is just a phone call away.

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Latest News on the COVID-19 PPP Loan Forgivness

The details of the PPP loan program are, currently, ever changing. Here is the latest news on the COVID-19 PPP loan forgiveness program:

 

As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law March 27, many small business owners were able to apply for – and receive – a loan of up to $10 million under the Paycheck Protection Program (PPP). Businesses – including nonprofits, veterans’ organizations, Tribal entities, self-employed individuals, sole proprietorships, and independent contractors – that were in operation on February 15 and that have 500 or fewer employees are eligible for the PPP loans. The deadline for applying for a PPP loan is June 30, 2020. If the loan proceeds are used as specified, business owners may apply to have the loan forgiven.

Here’s what you need to know about loan forgiveness under the PPP:

Covered Period

The loan covers eight weeks (56 days) of payroll, rent, mortgage interest and utility expenses; however, the Paycheck Protection Program Flexibility Act of 2020 (PPPFA) allows PPP loan borrowers that received loans before June 5th the option to extend the covered period to 24 weeks. The original June 30 deadline for rehiring workers and spending the PPP funds has also been extended to December 31 to allow for the 24-week period.

Generally, the first day of the covered period is the same day as the loan disbursement. For example, if the loan proceeds were received on Wednesday, April 22, that is the first day of the covered period. The last day of the covered eight-week period, for example, would then be Tuesday, June 16.

Alternate Payroll Covered Period. If you pay your employees weekly or bi-weekly, you may elect to have the eight-week (56-day) period – or 24-week period – begin on the first day of the first pay period following the PPP loan disbursement date. In the case of an eight-week period, if the loan proceeds were received on Wednesday, April 22, and the first day of the first pay period following the loan disbursement is Monday, April 27, the first day of the Alternative Payroll Covered Period is April 27 and the last day of the Alternative Payroll Covered Period is Sunday, June 21.

Eligible Expenses

PPP loans cover both payroll costs and nonpayroll costs; however, to be eligible for loan forgiveness, 60 percent of the PPP loan proceeds must go toward payroll costs (previously 75 percent), with the remaining 40 percent to be used toward nonpayroll costs.

If your business does not meet the 60 percent requirement, there will be a proportionate reduction in loan forgiveness – not a complete loss.

Here’s an example using the eight-week covered period: A business owner that received loan proceeds of $250,000 must use $150,000 of that amount on payroll costs to be eligible for loan forgiveness. The remaining $100,000 can be used to pay nonpayroll costs as specified below.

Under the PPPFA, businesses that received PPP loan funds are now able to delay payment of their payroll taxes. This was previously prohibited under the CARES Act.

Eligible payroll costs. Payroll costs include costs for employee vacation, parental, family, medical, and sick leave. The total amount of cash compensation – payroll costs paid and payroll costs incurred – for each individual employee may not exceed $15,385 for the covered period of eight weeks (56 days) based on an annualized salary of $100,000. If the borrower chooses a covered period of 24 weeks, then each individual employee may not exceed $46,154 for the covered period of 24 weeks based on an annualized salary of $100,000. Bonuses can be included as long as this threshold amount is not exceeded.

Payroll expenses for independent contractors or sole proprietors only include wages, commissions, income, or net earnings from self-employment, or similar compensation. PPP loan funds can be used to cover the owner compensation costs for eight weeks (8/52) of 2019 profit only – up to a maximum of $15,385. However, if the 24-week covered period is chosen, it is limited to 2.5 months (2.5/12) of 2019 net profit from Form 1040 Schedule C – up to a maximum of $20,833.

To count toward eligible payroll expenses, employer contributions for retirement plans as well as health insurance must be paid during the covered period.

Loan forgiveness is based on full-time equivalent (FTE) workers and a standard 40-hour work week. A simplified method allows 1.0 FTE for 40 hour work weeks and 0.5 FTE for less than 40 hour work weeks. Calculations can be done using either method to determine which one is most advantageous to the employer. Special rules apply for workers whose salary has been reduced by 25 percent or more. Please call if you have any questions about this.

Businesses that received PPP loans can exclude laid-off employees from loan forgiveness reduction calculations if the employees turn down a written offer to be rehired.

Eligible nonpayroll costs. Specific nonpayroll costs are also eligible for forgiveness; however, they cannot exceed 40 percent of the total forgiveness amount. They must be paid or incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period and can include costs that were paid and incurred one time.

  • Payments of interest on any business mortgage obligation on real or personal property incurred before February 15, 2020. These amounts do not include any prepayment or payment of principal
  • Business rent or lease payments (including leases for vehicles and office machinery) entered into force before February 15, 2020; and
  • Business utility payments for services begun before February 15, 2020 such as electricity, gas, water, transportation, telephone, or internet access.
  • Interest payments on debt obligations incurred before February 15, 2020
  • Refinancing an SBA EIDL loan made between January 31, 2020, and April 3, 2020

Self-employed individuals can use PPP loan funds to cover interest, rent and utility payments are also eligible as long as these amounts are deductible on Form 1040 Schedule C.

Loan Amounts not Forgiven

Any amounts that aren’t forgiven must be repaid at an interest rate of 1 percent, which begins to accrue upon loan disbursement. Payments, however, are deferred for six months once the SBA makes a determination of forgiveness. Under the PPPFA borrowers now have five years to repay new loans approved on or after June 5, 2020 (previously it was two years). Borrowers with loans disbursed prior to June 5, will still need to abide by the two-year loan period unless the lender agrees to extend it to five years.

Tracking Expenses

Business owners need to keep accurate records of how PPP loans are used. Failing to document or falsely claiming eligible expenses could lead to criminal penalties.

Don’t Delay. Start Planning Now to Maximize PPP Loan Forgiveness

Applications for forgiveness must be submitted within 10 months of the date of receiving the loan or it won’t be forgiven. If you’ve received a PPP loan and want to make sure your loan is forgiven, help is just a phone call away.

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New PPP Loan Forgiveness Guidelines and Applications Released (06-17-20)

A revised PPP loan forgiveness application and guidelines, and a new “EZ” loan forgiveness application, have been released to incorporate the changes made by the Paycheck Protection Program Flexibility Act and provide additional guidance. PRESS RELEASE – SBA and Treasury Announce New EZ and Revised Full Forgiveness Applications for the Paycheck Protection Program

The application and revised interim rules clarify that, for borrowers using the new 24-week loan forgiveness covered period, the maximum compensation eligible for loan forgiveness:

  • Per employee is increased to $46,154 (24 ÷ 52 × $100,000) plus covered benefits such as health care, retirement contributions, and state payroll taxes; and
  • For owners, is capped at 2.5 months of 2019 compensation, with a maximum of $20,833 (2.5 ÷ 12 × $100,000). Note: The application specifically lists self-employed individuals, general partners, and owner-employees, so it appears corporation owner-employees are included in this cap.

The new application instructions also clarify that:

  • Eligible payroll costs do not include any employer health insurance contributions made on behalf of self-employed individuals, general partners, or S corporation owner-employees;
  • Employer retirement contributions made on behalf of a self-employed individual or general partner are also excluded from payroll costs; and
  • Employer retirement contributions on behalf of owner-employees are capped at 2.5 months’ worth of the 2019 contribution amount. This limit is included on the EZ application but is not included on the full forgiveness application or in the updated interim final rule, but it is possible it will be added in the future.

The new simplified EZ application is available to be used by borrowers who:

  • Are self-employed and did not list any employees on their original loan application; or
  • Have employees, but are not subject to any loan forgiveness reduction due to salary or full-time equivalent employee reductions.

The revised interim rules and loan applications and instructions are available at:
https://home.treasury.gov/system/files/136/PPP-IFR–Revisions-to-the-Third-and-Sixth-Interim-Final-Rules.pdf

https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf
https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Instructions_1_0.pdf

https://home.treasury.gov/system/files/136/PPP-Forgiveness-Application-3508EZ.pdf
https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Form-EZ-Instructions.pdf

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