More from: IRS

IRS Withholding rules changing effective Jan 2020

The IRS is changing the withholding calculations and they no long involve “allowances” (ex: Married 2 or Single 0 no longer applies) and an Excel spreadsheet / macro calculator is provided by IRS to correctly withhold starting January 2020. Links and part of the IRS email blast from IRS Newswire <irs@service.govdelivery.com> follow.

We posted information from Circular E earlier this year, and the changes to IRS Form W-4 were alluded to in May 2019. The link to the current (Nov 4) draft of the Publication 15T document is https://www.irs.gov/pub/irs-dft/p15t–dft.pdf. The link to the new W-4 for 2020 is https://www.irs.gov/pub/irs-pdf/fw4.pdf. The link to the Excel Spreadsheet “Income Tax Withholding Assistant for Employers” calculator web page is https://www.irs.gov/businesses/small-businesses-self-employed/income-tax-withholding-assistant-for-employers. The related announcement is at https://www.irs.gov/newsroom/new-downloadable-assistant-helps-small-businesses-withhold-the-right-amount-of-income-tax.

The percentage method withholding tables for automated (example, Quick Books) are at https://www.irs.gov/forms-pubs/2020-percentage-method-tables-for-automated-payroll-systems


New downloadable assistant helps small businesses withhold the right amount of income tax

WASHINGTON — The Internal Revenue Service has launched a new online assistant designed to help employers, especially small businesses, easily determine the right amount of federal income tax to withhold from their workers’ pay.

Known as the Income Tax Withholding Assistant for Employers, this new spreadsheet-based tool is designed to help employers easily transition to the redesigned withholding system (no longer based on withholding allowances), which goes into effect on Jan. 1. It does this by helping them easily implement new income-tax withholding requests from employees who fill out the completely redesigned 2020 Form W-4, Employee’s Withholding Certificate.

At the same time, the tool can also help employers continue to properly withhold from employees who still have a withholding request on file using a past version of the W-4, which was based on withholding allowances. The employer can save a separate customized copy of the file for each employee containing that employee’s Form W-4 information.

Now available for download, without charge, on IRS.gov, the Income Tax Withholding Assistant for Employers is designed to help any employer who would otherwise figure withholding, manually, using a worksheet and either the percentage method or wage bracket tables found in Publication 15-T, Federal Income Tax Withholding Methods.


Inflation Adjustment: 2020 Tax items of most interest

This just in from Internal Revenue Service (IRS) <irs@service.govdelivery.com> (see web page at https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2020):

The tax items for tax year 2020 of greatest interest to most taxpayers include the following dollar amounts:

  • The standard deduction for married filing jointly rises to $24,800 for tax year 2020, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400 for 2020, up $200, and for heads of households, the standard deduction will be $18,650 for tax year 2020, up $300.
  • (ed. The lowest rate is really Zero 0% – a married family which brings in $24,800 or less does not owe any Federal Income tax. You must earn more than $24,800 to be taxable at all.)
  • The lowest rate is 10% for incomes over and above the standard deduction: single individuals with incomes of $9,875  or less and $19,750 for married couples filing jointly. [[ed. to clarify: to owe any tax at all for 2019 a family must earn at least $24,801 – $24,800 is subtracted off as the standard deduction, and 10% tax is owed on the remaining $1, or 10 cents tax total. You must earn $19,751 more than $24,800 to owe 12 cents tax on the $1 over $24,800+$19,750. By comparison the standard deduction in year 2016 was only $12,600 – half as much – so you had to pay 10% tax starting at $12,601 and the next bracket was 15% not 12% and started at only $9,275. See the Forbes article here]]
  • 37% for individual single taxpayers with incomes greater than $518,400 ($622,050 for married couples filing jointly).
  • 35%, for incomes over $207,350 ($414,700 for married couples filing jointly);
  • 32% for incomes over $163,300 ($326,600 for married couples filing jointly);
  • 24% for incomes over $85,525 ($171,050 for married couples filing jointly);
  • 22% for incomes over $40,125 ($80,250 for married couples filing jointly);
  • 12% for incomes over $9,875 ($19,750 for married couples filing jointly).
  • For 2020, as in 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
  • The tax year 2020 maximum Earned Income Credit amount is $6,660 for qualifying taxpayers who have three or more qualifying children, up from a total of $6,557 for tax year 2019. The revenue procedure contains a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
  • For tax year 2020, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $118,000, up from $116,000 for tax year 2019.
  • For tax year 2020, the foreign earned income exclusion is $107,600 up from $105,900 for tax year 2019.
  • Estates of decedents who die during 2020 have a basic exclusion amount of $11,580,000, up from a total of $11,400,000 for estates of decedents who died in 2019.
  • The annual exclusion for gifts is $15,000 for calendar year 2020, as it was for calendar year 2019.
  • The maximum credit allowed for adoptions for tax year 2020 is the amount of qualified adoption expenses up to $14,300, up from $14,080 for 2019.

Year 2018 Tax Returns Statistics Now Available for public review

This just in from IRS via Tax Statistics <irs@service.govdelivery.com>. Citizens may subscribe to receive these notices on IRS page https://www.irs.gov/newsroom/e-news-subscriptions


  1.  Individual Income Tax Returns, Mid-July Filing Season Statistics, Tax Year 2018


A table providing data from individual income tax returns filed through July 25, 2019, for Tax Year 2018 is now available on SOI’s Tax Stats Web page. These data include selected income items, adjustments, credits, and taxes, by size of adjusted gross income (AGI). The data represent approximately 95 percent of all individual income tax returns that the IRS will process in Calendar Year 2019 and the first tax data filed under the Tax Cuts and Jobs Act. The remaining 5 percent of returns will be primarily from taxpayers who have requested a 6-month extension by filing Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.  Because taxpayers who request an extension generally have more complex finances, on average, those data will represent approximately 87 percent of the total AGI tax liability reported for all individual income tax returns filed during the year.

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  2.  Individual Income Tax Returns with Small Business Income/Losses, Tax Years 2015–2017


New tables for Individual income tax returns that contain small business income or losses for Tax Years 2015–2017 are now available on SOI’s Tax Stats Web page. These tables include income from Schedule C, Profit or Loss from Business, Schedule E, Supplemental Income or Loss, and Schedule F, Profit or Loss from Farming. The information will provide more background and content from the individual business returns, including data on income items, adjustments, credits, and taxes. For 2017, over 42 million individual income tax returns had some small business income and/or losses. Although they represented a little more than a quarter (27.7 percent) of all individual tax returns filed for 2017, these returns accounted for 47.1 percent of adjusted gross income (AGI) and paid 60.4 percent of income tax. For each of the three years of data provided, the largest portion of small business income came from net partnership/S corporation income less losses.


IRS Free File opens today in advance of tax season

This just in via email from IRS Newswire <irs@service.govdelivery.com>:

Issue Number:    IR-2019-02

Changes strengthen program

Free File can also help navigate new tax law provisions

WASHINGTON — An improved version of IRS Free File begins its 17th filing season today as a dozen private-sector partners offer their brand-name products to help eligible taxpayers navigate the new tax reform law and electronically prepare their tax returns.

The free online software program, accessible only through IRS.gov FreeFile, is available for taxpayers to use in advance of the start of the filing season on Jan. 28.

Who can use Free File

Any individual or family whose adjusted gross income for 2018 was $66,000 or less can find at least one Free File software product they can use. Often, taxpayers are eligible for multiple products. The income limitation means that 100 million taxpayers – 70 percent – are eligible to use Free File.

Workers, families with children, first-time filers and seniors who meet the income criteria are all eligible for Free File. The software supports all the new tax law changes as well as long-time benefits such as the Earned Income Tax Credit. While most products have a set of eligibility requirements, 10 Free File partners have a special offer for active duty military personnel by making their sole eligibility criteria an income of $66,000 or less.

IRS Free File is all that’s needed for residents of Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming where there is no state income tax. Some Free File partners offer free federal and free state return preparation. And some states have their own Free File program.

 

For Indiana Free File browse to https://www.in.gov/dor/4578.htm


Tax Refunds Unaffected by “Shut Down”

This just in via email from IRS Newswire <irs@service.govdelivery.com>:

Issue Number: IR-2019-01

IRS confirms tax filing season to begin January 28

WASHINGTON ― Despite the government shutdown, the Internal Revenue Service today confirmed that it will process tax returns beginning January 28, 2019 and provide refunds to taxpayers as scheduled.

“We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown. I appreciate the hard work of the employees and their commitment to the taxpayers during this period,” said IRS Commissioner Chuck Rettig.

Congress directed the payment of all tax refunds through a permanent, indefinite appropriation (31 U.S.C. 1324), and the IRS has consistently been of the view that it has authority to pay refunds despite a lapse in annual appropriations. Although in 2011 the Office of Management and Budget (OMB) directed the IRS not to pay refunds during a lapse, OMB has reviewed the relevant law at Treasury’s request and concluded that IRS may pay tax refunds during a lapse.

“IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years,” said Rettig.

As in past years, the IRS will begin accepting and processing individual tax returns once the filing season begins. For taxpayers who usually file early in the year and have all of the needed documentation, there is no need to wait to file. They should file when they are ready to submit a complete and accurate tax return.

The filing deadline to submit 2018 tax returns is Monday, April 15, 2019 for most taxpayers. Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019 to file their returns.

The IRS strongly encourages people to file their tax returns electronically to minimize errors and for faster refunds.