What to Know for Year-End Reporting ComplianceKevin Von | Updated: 18-11-2020 10:38 IST | Created: 18-11-2020 10:13 IST
The year-end is coming, so employers and their bookkeeping teams put effort into the reporting. Some of the requirements have changed, so employers need to figure this out. The current situation imposed some changes, so 2020 has different requirements regarding the reporting. In this article, we share the most significant changes and updates.
New IRS Form W-4
The IRS has a new form for income tax withholding, which changes some things regarding calculations. They have added a new category, which eliminates the allowances. Employers will enter their tax information in the form.
Filling out the forms might be difficult for employees, as it is more complicated. Employers need to adjust the process of how their employees fill out the new form. New hires are less likely to have their previous tax return remembered. Also, you need to offer them enough time and privacy to sort things out. Ensure that they have tax help available if they need it when filling out the W-4. Companies like Bookstime offer reliable and professional bookkeeping service.
New hires in 2020 will have to use this form too. The existing employees can continue to use their current tax withholding if they feel more comfortable with it. However, if they want to switch the withholding in 2021, they will have to use the new calculations.
State governments use the IRS system and are still finding ways to incorporate the new forms. This means that the new W-4 can have an impact on the state tax withholding. However, the approach varies between states. They are still trying to implement the new practice, so expect announcements for changes from governments. They use the W-4 for the state tax, but there is no option to enter allowances on the federal form.
Many governments are figuring out how to operate under the new limit on deduction covered by the Tax Cuts and Jobs Act. The $10,000 limit on the federal deduction is solved by decreasing income taxes and increasing payroll taxes.
New York solved this bookkeeping issue with the introduction of an optional payroll tax. Connecticut is still in the process of performing a study to find out if they should shift to a payroll tax. Many states are still looking for the best option that complies with the Act.
The State Deadlines
To prevent stealing identity and tax return frauds, the deadline for submitting the W-2 is Jan. 31. The pilot program for the verification code hasn't been mandatory in the past few years. In 2020, the tax of 6.2% remains the same. However, the taxable earnings are limited to $137,700, which is the Social Security maximum.
Medicare taxes will remain the same. The rate for employers and employees with maximum earnings of $200,000 is 1.45%. For incomes above $200,000, it is 2.35%. Employers are required to file the W-2 forms electronically. One important thing to keep in mind is that the penalties for late submission are increased in some states.
How to fill W-4 according to bookkeeping experts
- Keep in mind that new employees hired later than Jan. 1, 2020, need to fill out the new W-4 form.
- Add your personal information. There are minor changes with the new forms, so be sure to read carefully.
- Add the necessary information if you have more than one job or a working spouse. This crucial step will have an influence over the tax rates. Your employer and the bookkeeping professional might not be aware that your total earnings are higher.
- Step 3 is where you enter information about dependents, such as children under 17 or parents. There is an income limit eligible for claiming credits.
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