Preparing for Form W-4 and Tax Reform
09/04/18 | 9:00AM | Posted by TEAM Software
Key compliance updates for service contractors.
Updated: September 26, 2018.
Following feedback from the payroll and tax communities, the Treasury Department and the IRS will incorporate important changes into a new version of the Form W-4, Employee’s Withholding Allowance Certificate, for 2020. The 2019 version of the Form W-4 will be similar to the current 2018 version. A new draft version of the W-4 for 2019 will be available in the coming weeks.
Tax and payroll updates are important to pay attention to, regardless of what industry you’re in. After all, they impact a critical part of your business: paying your employees (don’t forget, it’s still National Payroll Week). For service contractors such as janitorial or security companies, it can be even more important, and challenging, to stay connected to the ever-changing tax and payroll compliance landscape when you’re managing distributed workforces and you have a small back-office team. Depending on the size of your business, you could be dealing with employees and job sites across multiple states which only leads to further potential tax complexities.
Here are some key updates you should have on your radar, as well as some additional trends worth keeping an eye on.
Form W-4 updates
We discussed some of the Form W-4 updates that are coming up in 2019 in a previous post, but it’s worth revisiting again as the new year gets closer. The final release of the Form W-4 is expected in the coming weeks and will be published on the Internal Revenue Service (IRS) website as soon as it’s available. As employers and payroll providers, you should use the 2019 Publication 15, Employer’s Tax Guide, to understand how the new fields listed on the Form W-4 affect payroll tax withholdings.
The Tax Cuts and Jobs Act (TCJA) impacts both business owners and employees. As the IRS implements this major tax legislation, there are several resources you should reference for how it relates to your business and ones that should be distributed to your employees.
The Tax Reform Provisions that Affect Businesses page from the IRS has updates and resources to help you navigate how the TCJA affects your business. Some of the changes include:
- Extensions on certain carried interests to three years.
- Like-kind exchanges now apply only to the exchange of real property.
- Limitations on deductions of business interest incurred by certain large businesses.
- Employers may no longer deduct for certain fringe benefits.
- Employers may claim credit for paid family and medical leave.
The TCJA means that employees need to check their Form W-4 deductions to ensure they’re having the correct amount withheld. It should be standard practice for employees to check their deductions each year, but this tax legislation makes it even more important. Resources the IRS has made available and that you should distribute to your employees include:
- The withholding calculator helps employees identify their tax withholding to make sure they have the right amount of tax withheld from their paycheck.
- Answers to several frequently asked questions about the withholding calculator.
- Paycheck Checkup flyer encouraging employees to use the withholding calculator.
State adoption of Form W-4
With the release of the draft Form W-4, states must decide if they’re going to revise their own withholding forms or accept the federal version. For example, New Jersey employers must now use the new withholding table established by the New Jersey Division of Taxation (DOT) and Idaho has an updated withholding guide and new worksheets for Form W-4.
This list highlights some of the U.S. tax and payroll compliance changes. Please continue to use industry resources such as the Society for Human Resource Management (SHRM) and the American Payroll Association (APA) to stay updated on all tax related compliance changes. TEAM is dedicated to ensuring our software solutions meet the ever-changing compliance needs of our customers. While we’re committed to keeping you informed, it’s important to do your own research, and consult your own legal and tax advisors when necessary, too.