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Posts published in “Withholding”

Employee Guide to the 2021 Form W-2

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Over the next few weeks, as your employees start to receive their 2021 W-2 form, they will most likely have many questions as to what all those numbers mean.  For example, it is not uncommon for a salaried employee who earns $50,000 per year question why their Box 1 Wages only reflects $45,000.  Did they get underpaid? Probably not. If the employee contributes to a pension plan (aka 401(k)) or has pre-tax insurance deductions, then those amounts reduces the “taxable” wage, which is what appears in Box 1. Some employees may also wonder why their Federal Income Tax withheld is…

Withholding Tax Rates Drop Drastically With New W-4 Form

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Almost three years ago, I wrote an article about the steady decline in the amount of federal income tax withheld from an employee’s check over the past three decades. This was prior to the new 2020 Form W-4 redesign, so I thought it would be interesting to revisit this chart and see its effect. As we saw three years ago, the amount of income tax withheld from an employee claiming Single with One allowance or Married with One allowance has steadily decreased, with the exception of 2009 where there was a sharp decrease that eventually returned to its pre-depression state…

2021 W-4 Form News You Can Use

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There has been no change to the 2021 W-4 Form from the recently re-designed 2020 version, other than the tax table, but there has been a bit of confusion. First off, the IRS encourages the use of the new form, but it is not required for 2021. Employees will find a more accurate withholding and, most likely, enjoy a higher net pay on every check if they do complete a new form. Payroll systems that utilize the new tax withholding table have recently been provided the ability to ‘bridge’ the 2019 and earlier form as if they were the the…

State Income Tax Withholding Considerations

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Unless you live and work in one of the following nine states that do not tax wages, you are required to withhold state income tax on wages paid to your employees: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.  While this may sound simple enough, there are a number of considerations that need to be made, and we will go over them here, including the COVID-19 wrench in the machine. The Form First up is the form itself.  There are a few states that did not adopt their own state withholding tax form, so here is…

Priority of Deductions

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There are times when an employee’s actual gross pay (excluding taxable fringe items) is insufficient to accommodate all of their deductions in full.  In those cases where there is not enough net pay, there is an order in which deductions are to be processed until the check is zero.  I am going to cover the basics of that order without going into the details of each specific deduction, as this would end up being a super-sized blog.  Be sure to check out my previous blogs for details on some of the specific deductions.   Deductions are taken in the order below,…

2020 W-4 – Tips and Help for All

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The 2020 Form W-4, Employee’s Withholding Certificate, is very different from previous versions. This is due to the federal tax law changes that took place in 2018 from the 2017 Tax Cuts and Jobs Act.  Check out my prior article with a bit of history and nostalgia of a 30 year old form. https://blog.paymaster.com/here-it-comes-2020-w4-form/ The most significant change is that there is no longer the use of withholding allowances, and the form asks the employee to basically prepare an estimated tax return. Some of the information requested may even be considered intrusive, including income from other sources, spouse income, itemized…

Gifts to Employees – A Taxing Topic

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We all know that when we pay an employee in cash/wages, it is a taxable transaction to the employee.   What is less commonly known is what should happen when something of value other than cash/wages is given.  Gifts such as a Thanksgiving turkey, a $25 store gift card for a job well done, a Caribbean cruise vacation for meeting a sales quota, or even a Rolex watch for an employee’s twenty-year anniversary with the company all have different tax consequences.  Sometimes the exact same gift given under two different situations may be taxed differently. This article will cover the…

Ready or Not, Here it Comes. 2020 W-4

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The W-4 form has remained basically unchanged for many decades.  For a flashback, here is what it looked like in 1990: https://www.irs.gov/pub/irs-prior/fw4–1990.pdf.  Unchanged until now, that is.  The IRS has done a complete revamp of the form for 2020 by adding many additional fields for the employee to complete as well as removing ‘number of allowances.’  You may ask how that can be since the number of allowances basically dictated the amount of federal income tax withheld from a paycheck. You need to see the new form to believe it, and here it is: https://www.irs.gov/pub/irs-dft/fw4–dft.pdf. The form asks the employee…

New Federal Withholding W-4 Form Released

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Whew!  We dodged a bullet… at least for another year.  If you are not familiar with what the 2019 W-4 form could have looked like, then keep an eye out for a future article where we will give it a thorough review as it is now postponed for 2020 by the U.S. Treasury. The new 2019 W-4 form has been published (including the Spanish W-4(SP) version) and not much is changed from the 2018 version. A Form W-4 remains in effect until the employee gives you a new one, so you do not need to obtain a new form each year.  When…

Spring Cleaning? Record Retention Guidelines to Help Clear the Clutter

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A question I am often asked is ‘How long must I maintain my payroll records?’, and the answer is; “it depends”.   Reason being is that there are many different documents that are maintained within the payroll world by a myriad of federal, state, and local agencies, and a lots of overlap.  Some people put a blanket retention policy of seven years across all documents, but in some cases as we will see, even that may not be long enough.  Namely if the records are for an active employee. Let’s take a look at the more popular forms and documents, and bring some order to…