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The Illinois Department of Revenue updated the 2023 partnership replacement tax return instructions to:cover new requirements that investment partnerships withhold income tax for nonresident partners;...
For corporate and personal income tax purposes, the Wisconsin Department of Revenue has updated its fact sheet regarding the farmland preservation credit. Fact Sheet 1115, Wisconsin Department of Reve...
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Happy New Year 2024! It’s that time of year again. We hope you all had a great 2023 and would like to thank you for remaining loyal clients of Carefree Tax Service. The office will operate much the same as last year (with the exception of the bakery next door being closed) with Robin and Tony working extended hours, Jen working full time, and Wendy limiting her time even more so than last year.
Following are some of the new 2023 tax law updates and things to consider for 2024. If you are a returning client and would like a personalized client organizer for tax planning, request one via email at: tony@carefreetax1040.com . An organizer is also on our website, www.carefreetax1040.com, under the Info Center tab. There are several financial calculators on the website along with a number of financial and tax links, including IRS and WI/IL Department of Revenue websites. Our website contains lots of information that will be helpful for tax planning.
We are looking forward to seeing you soon! Call 608-756-9930 to set up your appointment. Again, we thank you for allowing us the opportunity to serve you.
Sincerely,
Tony, Jen, Robin, and Wendy
Please Bring the Following Important Information to your Appointment.
It is important that you fill out the attached data sheet (front and back) and bring it to your appointment with related paperwork. It will help with your organization and our documentation. Also, bring in any updated bank information for direct deposit of refunds. We appreciate your cooperation with this!
Reporting Rules for Businesses. In January 2021, the Corporate Transparency Act was signed into law to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity. As a result, businesses are now required to become more transparent about their ownership structures. Starting January 1, 2024, most business entities created in or registered to do business in the United States will be required to report information about their beneficial owners — the individuals who ultimately own or control a company — to the Financial Crimes Enforcement Network (“FinCEN”). A business entity is defined as a corporation, a limited liability company (LLC), or a business entity otherwise created by filing a document with a secretary of state or similar office. Non-LLC sole proprietorships are excluded from this definition.
The reporting procedure goes into effect on January 1, 2024. The due date for the initial report depends on when the entity was created:
1. If your company is created on or after January 1, 2024, then the initial report is due within 30 calendar days of the date the business is created.
2. If the company was formed before January 1, 2024, then the initial report is due no later than January 1, 2025.
Electric vehicle credits for new vehicles. 2023 brought some changes to the rules for claiming federal tax credits for purchasing electric vehicles (EV). Some of those changes include:
· Qualifying vehicles must be assembled in North America.
· Increasing percentages of battery minerals and components must be sourced from the U.S. or from one of its free-trade partners.
· The manufacturer vehicle sales caps have been eliminated, meaning brands such as Chevrolet, Tesla and Toyota are eligible for EV credits again starting in 2023.
· Starting in 2024, buyers can take the EV tax credit directly at the point of sale rather than having to wait to claim it on their tax return.
Effective January 1, 2023, the following price and income limits apply:
Price limits for new vehicles:
· SUVs, vans and pickup trucks - $80,000
· Any other qualifying vehicle - $55,000
Income limits for new vehicles (based on MAGI):
· $300,000 - Joint returns or surviving spouse
· $225,000 - Head of household
· $150,000 - Any other filing status
Electric vehicle credits for used vehicles. A tax credit is also available for eligible used vehicles purchased from a dealer for $25,000 or less. The credit amount is 30% of the vehicle’s sale price, up to a maximum credit of $4,000. For this purpose, the credit is maxed out for vehicles purchased for $13,330 or more.
The credit is only available if you use the vehicle, rather than purchase it for resale. Those who qualify as your tax dependents do not qualify for the credit. You can only claim the credit for used vehicles once every three years, and it’s only allowed once for any vehicle.
To qualify for this credit, your modified adjusted gross income (increased by certain nontaxed foreign income) for either the sale year or the year preceding it is limited to the following:
· $150,000 or less on a joint return
· $112,500 for a head of household filer
· $75,000 for singles and married filing separately
Energy efficient property credit. Property owners are eligible for a tax credit for installing energy efficient property in their homes.
The following annual credit limits apply:
· $1,200 per taxpayer per year
· $600 for windows and skylights
· $250 for any exterior door ($500 total for all exterior doors)
· A $2,000 annual limit applies to the cost of specified heat pumps, heat pump water heaters, and biomass stoves and boilers.
· $150 for home energy audits
Residential clean energy credit. This credit was formerly known as the residential energy efficient property (REEP) credit which was equal to 26% of property place installed in residential homes in years before 2024.
The credit equals:
· 30% - placed in service after Dec. 31, 2021, and before Jan. 1, 2033
· 26% - placed in service after Dec. 31, 2032, and before Jan. 1, 2034
· 22% - placed in service after Dec. 31, 2033, and before Jan. 1, 2035.
Qualified expenditures include the costs incurred for installing qualified solar property for generating electricity and hot water, geothermal heat pumps, fuel cell property biomass fuel property and small wind energy.
Required distributions to plan beneficiaries. If you are a non-spouse beneficiary of an IRA, you are required to take annual minimum distributions from the inherited IRA regardless of your age. The amount of the distribution varies depending on whether the decedent was already taking distributions.
If the deceased IRA owner died before his or her required beginning date, one of two rules apply:
(1) For a non-spouse beneficiary who is (a) disabled or chronically ill, (b) a child of the deceased IRA owner who has not reached the age of majority, or (c) no more than 10 years younger than the deceased IRA owner, distributions must begin by Dec. 31 of the year after the year in which the deceased owner died. The distributions must be made over the beneficiary’s life expectancy, or over a period not extending beyond his or her life expectancy.
(2) For beneficiaries other than those above, distributions must be completed within ten years of the death of the IRA owner. The beneficiary can, but doesn’t have to, take distributions before the tenth anniversary of the IRA owner’s death.
If the IRA owner died on or after his or her required beginning date, then:
(I) For a non-spouse beneficiary who is (a) disabled or chronically ill, (b) a child of the deceased IRA owner who has not reached the age of majority, or (c) no more than 10 years younger than the deceased IRA owner, the required minimum distributions for years after the year of the owner’s death must be based on the longer of the life expectancy of the inheritor, or the deceased owner’s life expectancy.
(II) For beneficiaries other than those listed above, distributions must be completed within ten years of the death of the IRA owner. Distributions must be made by Dec. 31 each year beginning the year following the year of death.
Student loan debt. The maximum amount of student loan interest you can deduct each year is $2,500. The deduction is phased out if your adjusted gross income (AGI) exceeds certain levels.
For 2023, the deduction is phased out for taxpayers who are married filing jointly with AGI between $155,000 and $185,000 ($75,000 and $90,000 for single filers).
Retirement plan contribution limits for 2023. The qualified plan and IRA contribution limits for 2023.
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $22,500.
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans, is increased to $7,500. Therefore, if you are 50 and older you can contribute up to $30,000, starting in 2023.
Standard Mileage Rate. Taxpayers can use the standard mileage rate instead of actual expenses when computing the deductible costs of operating automobiles owned or leased by them (including vans, pickups, or panel trucks) for business purposes.
Rate
Business
$0.655
Medical
$0.22
Moving
$0.22*
Charitable
$0.14
*Applies to members of the Armed Forces on active duty who move pursuant to a military order.
Tax Planning and Looking Ahead to 2024
Long-term capital gain from sales of assets held for more than one year is taxed at 0%, 15% or 20%, depending on your taxable income. If you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains that can be sheltered by the 0% rate. The 0% rate generally applies to the excess of long-term capital gain over any short-term capital loss to the extent that, when added to regular taxable income, it is not more than the maximum zero rate amount (e.g., $89,250 for a married couple for 2023).
Consider a Roth IRA if you believe it’s better for you than a traditional IRA. Consider converting traditional-IRA money invested in any low performing stocks (or mutual funds) into a Roth IRA in 2023 if eligible to do so. Keep in mind that the conversion will increase your income for 2023, possibly reducing tax breaks subject to phaseout at higher AGI levels.
IRA contributions. If you are considering making an IRA contribution for 2023, you have until April 15, 2024. For 2023, you can contribute up to $6,500 or $7,500 if you are age 50 or older. Income limits apply if you or your spouse are covered by an employer provided retirement plan.
Health savings accounts. If you become eligible in December of 2023 to make health savings account (HSA) contributions, you can make a full year’s worth of deductible HSA contributions for 2023 provided you make them by April 15, 2024. For 2023, the maximum contribution you can make is $3,850 for self-only coverage, and $7,750 for family coverage. You can contribute an additional $1,000 if you are over age 55.
You are eligible to make contributions into a health savings account if you are covered under a high deductible health plan. Also keep in mind that HSA contributions are not allowed for the month an individual becomes eligible for Medicare (age 65 under current law) and for all subsequent months.
Charitable giving. If you are age 72 or older by the end of 2023, have traditional IRAs, and especially if you are unable to itemize your deductions, consider making a qualified charitable distribution (QCD) from your IRA(s). These distributions are made directly to charities from your IRA. In addition, a qualified charitable distribution also counts as a distribution for purposes of the required minimum distribution (RMD) rules.
The amount of the contribution is neither included in your gross income nor deductible on Schedule A, Form 1040. However, you are still entitled to claim the entire standard deduction.
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President Biden support extending the individual tax provisions of the Tax Cuts and Jobs Act, many of which are set to expire next year, Department of the Treasury Secretary Janet Yellen said.
President Biden support extending the individual tax provisions of the Tax Cuts and Jobs Act, many of which are set to expire next year, Department of the Treasury Secretary Janet Yellen said.
"The President has made it clear that he would oppose raising back the taxes for working people and families making under $400,000," Secretary Yellen testified before the Senate Finance Committee during a March 21, 2024, hearing to review the White House fiscal year 2025 budget proposal.
She then affirmed that "he would" support extending the individual tax provisions of the TCJA when asked by committee Ranking Member Mike Crapo (R-Idaho), who noted that the budget did not make any mention of this.
Yellen defended the fiscal 2025 budget request against assertions that taxes will indeed go up for those making under $400,000, contrary to President Biden’s promise, because the taxes that are targeted to wealthy corporations to ensure they are paying their fair share will ultimately be passed down to their consumers in the form of higher prices and lower wages.
"I think what the impact when you change taxes on corporations, what the impact is on families involves a lot of channels that are speculative," Yellen said. "They are included in models that sometimes the Treasury used for the purposes of analysis, in a tax that is levied on corporations, that has no obvious direct effect on households."
The proposed budget would increase the corporate minimum tax from the current 15 percent to 21 percent, as well as raise the tax rate on U.S. multinationals’ foreign earnings from the current 10.5 percent to 21 percent. The current corporate tax rate would climb to 28 percent and the budget would eliminate tax breaks for million-dollar executive compensation. It would also increase the tax rate on corporate stock buybacks from 1 percent to 4 percent, among other business-related tax provisions.
By Gregory Twachtman, Washington News Editor
Corporations and billionaires will be paying more in taxes if Congress follows recommendations President Biden gave during his State of the Union address.
Corporations and billionaires will be paying more in taxes if Congress follows recommendations President Biden gave during his State of the Union address.
President Biden highlighted a number of initiatives during the March 7, 2024, address. For corporations, he said that it is "time to raise the corporate minimum tax to at least 21 percent."
"Remember in 2020, 55 of the biggest companies in America made $40 billion and paid zero in federal income taxes," President Biden said. "Zero. Not anymore. Thanks to the law I wrote [and] we signed, big companies have to pay minimum 15 percent. But that’s still less than working people paid federal taxes."
Additionally, he alluded to further recommendations that will likely be included when the administration released its budget proposal, expected as early as the week of March 11, 2024. This includes limiting tax breaks related to corporate and private jets and capping deductions on certain employees at $1 million.
For billionaires, President Biden is looking to increase their tax rate to 25 percent.
"You know what the average federal taxes for those billionaires [is]?" he asked. “"They’re making great sacrifices. 8.2 percent. That’s far less than the vast majority of Americans pay. No billionaire should pay a lower federal tax rate than a teacher or a sanitation worker or nurse."”
President Biden said this proposal would raise $500 billion over the next 10 years and suggested some of that additional tax money would help strengthen Social Security so that there would be no need to cut benefits or raise the retirement age to extend the life of the Social Security program.
The IRS has launched a new initiative to improve tax compliance among high-income taxpayers who have not filed federal income tax returns since 2017.
The IRS has launched a new initiative to improve tax compliance among high-income taxpayers who have not filed federal income tax returns since 2017. This effort, funded by the Inflation Reduction Act, involves sending out IRS compliance letters to over 125,000 cases where tax returns have not been filed since 2017. These mailings include more than 25,000 to individuals with incomes exceeding $1 million and over 100,000 to those with incomes ranging between $400,000 and $1 million for the tax years 2017 to 2021. The IRS will begin mailing these compliance alerts, formally known as the CP59 Notice, this week.
Recipients of these letters should act promptly to prevent further notices, increased penalties, and stronger enforcement actions. Consulting a tax professional can help them swiftly file late tax returns and settle outstanding taxes, interest, and penalties. The failure-to-file penalty is 5 percent per month, capped at 25 percent of the tax owed. Additional resources are available on the IRS website for non-filers.
The non-filer initiative is part of the IRS's broader campaign to ensure large corporations, partnerships, and high-income individuals fulfill their tax obligations. Non-respondents to the non-filer letter will face further notices and enforcement actions. If someone consistently ignores these notices, the IRS may file a substitute tax return on their behalf. However, it's still advisable for the individual to file their own return to claim eligible exemptions, credits, and deductions.
An individual’s claim for innocent spouse relief was rejected for lack of jurisdiction because the taxpayer failed to file his petition within the 90-day deadline under Code Sec. 6015(e)(1)(A).
An individual’s claim for innocent spouse relief was rejected for lack of jurisdiction because the taxpayer failed to file his petition within the 90-day deadline under Code Sec. 6015(e)(1)(A). The taxpayer argued that the deadline to file a petition for a denial of innocent spouse relief was not jurisdictional and asked that the Tax Court hear his case on equitable grounds. However, the Tax Court noted that a filing deadline is jurisdictional if Congress clearly states that it is. The IRS argued that argues that the 90-day filing deadline of Code Sec. 6015(e)(1)(A) was jurisdictional because Congress clearly stated that it was and the Supreme Court’s decision in Boechler, P.C. v. Commissioner, 142 S. Ct. 1493, in addition to numerous appellate cases, supported this argument.
The Tax Court examined the "text, context, and relevant historical treatment" of the provision at issue and concluded that the 90-day filing deadline of Code Sec. 6015(e)(1)(A) was jurisdictional. On the basis of statutory interpretation principles, the jurisdictional parenthetical in Code Sec. 6015(e)(1)(A) was unambiguous. It did not contain any ambiguous terms and there was a clear link between the jurisdictional parenthetical and the filing deadline. Specifically, Code Sec. 6015(e)(1)(A) is a provision that solely sets forth deadlines. Further, it was unclear what weight, if any, should be given to the equitable nature of Code Sec. 6015. The statutory context arguments were not strong enough to overcome the statutory text. Accordingly, the Tax Court ruled that the 90-day filing deadline in Code Sec. 6015(e)(1)(A) was jurisdictional.
P.A. Frutiger, 162 TC —, No. 5, Dec. 62,432
The IRS has continued to increase the amount of information available in multiple languages. This was part of the IRS transformation work under the Strategic Operating Plan, made possible by additional resources provided by the Inflation Reduction Act (P.L. 117-169).
The IRS has continued to increase the amount of information available in multiple languages. This was part of the IRS transformation work under the Strategic Operating Plan, made possible by additional resources provided by the Inflation Reduction Act (P.L. 117-169). On IRS.gov, taxpayers can select their preferred language from the dropdown menu at the top of the page, including Spanish, Vietnamese, Russian, Korean, Haitian Creole, Traditional Chinese and Simplified Chinese. Additionally, the Languages page gives taxpayers information in 21 languages on key topics such as "Your Rights as a Taxpayer" and "Who Needs to File."
"The IRS is committed to making further improvements for taxpayers in a wide range of areas, including expanding options available to taxpayers in multiple languages," said IRS Commissioner Danny Werfel. "Understanding taxes can be challenging enough, so it’s important for the IRS to put a variety of information on IRS.gov and other materials into the language a taxpayer knows best. This is part of the larger effort by the IRS to make taxes easier for all taxpayers," he added.
If taxpayers cannot find the answers to their tax questions on IRS.gov, they can call the IRS or get in-person help at an IRS Taxpayer Assistance Center. Finally, hundreds of IRS Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs have access to Over the Phone Interpreter services. VITA and TCE offer free basic tax return preparation to qualified individuals.
The IRS has granted to withholding agents an administrative exemption from the electronic filing requirements for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.
The IRS has granted to withholding agents an administrative exemption from the electronic filing requirements for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. Under the exemption:
- withholding agents (both U.S. and foreign persons) are not required to file Forms 1042 electronically during calendar year 2024; and
- withholding agents that are foreign persons are not required to file Forms 1042 electronically during calendar year 2025.
The exemption is automatic, so withholding agents do not need to file an electronic filing waiver request to use the exemption.
Electronic Filing of Form 1042
Under Code Sec. 6011(e), the IRS must prescribe regulations with standards for determining which federal tax returns must be filed electronically. In 2023, final regulations were published to implement amendments to Code Sec. 6011(e) that lowered the threshold number of returns for required electronic filing of certain returns. The regulations included requirements for filing Form 1042 electronically.
The final regulations provide that:
- a withholding agent (but not an individual, estate,or trust) must electronically file Form 1042 if the agent is required to file 10 or more returns of any type during the same calendar year in which Form 1042 is required to be filed;
- a withholding agent that is a partnership with more than 100 partners must electronically file Form 1042 regardless of the number of returns the partnership is required to file during the calendar year; and
- a withholding agent that is a financial institution must electronically file Form 1042 without regard to the number of returns it is required to file during the calendar year.
The final regulations apply to Forms 1042 required to be filed for tax years ending on or after December 31, 2023. This means that withholding agents must apply the new electronic filing requirements beginning with Forms 1042 due on or after March 15, 2024.
Challenges to Withholding Agents
Since the final regulations were published, the IRS received feedback from withholding agents noting challenges in transitioning to the procedures needed for filing Forms 1042 electronically. Withholding agents expressed concerns about the limited number of Approved IRS Modernized e-File Business Providers for Form 1042, and difficulties accessing the schema and business rules for filing Form 1042 electronically. Withholding agents that do not rely on modernized e-file business providers said that they needed more time to upgrade their systems for filing on the IRS’s Modernized e-File platform. Agents also noted challenges specific to foreign persons filing Forms 1042 regarding the authentication requirements necessary for accessing the platform.
In response to these concerns, the IRS used its power under the regulations to provide the exemption from the electronic filing requirement for Form 1042, in the interest of effective and efficient tax administration.
For 2021, the Social Security tax wage cap will be $142,800, and Social Security and Supplemental Security Income (SSI) benefits will increase by 1.3 percent. These changes reflect cost-of-living adjustments to account for inflation.
For 2021, the Social Security tax wage cap will be $142,800, and Social Security and Supplemental Security Income (SSI) benefits will increase by 1.3 percent. These changes reflect cost-of-living adjustments to account for inflation.
2021 Wage Cap
The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:
- a 6.2 percent Social Security tax, also known as Old Age, Survivors, And Disability Insurance (OASDI); and
- a 1.45 percent Medicare tax, also known as hospital insurance (HI).
For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:
- a 12.4 percent OASDI tax; and
- a 2.9 percent HI tax.
OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.
For 2021, the wage base is $142,800. Thus, OASDI tax applies only to the taxpayer’s first $142,800 in wages or net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $142,800.
There is no wage cap for HI tax.
Maximum Social Security Tax for 2021
For workers who earn $142,800 or more in 2021:
- an employee will pay a total of $8,853.60 in social security tax ($142,800 x 6.2 percent);
- the employer will pay the same amount; and
- a self-employed worker will pay a total of $17,707.20 in social security tax ($142,800 x 12.4 percent).
Additional Medicare Tax
Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:
- $250,000 for married taxpayers who file a joint return;
- $125,000 for married taxpayers who file separate returns; and
- $200,000 for other taxpayers.
The annual wage cap does not affect the Additional Medicare tax.
Benefits Increase for 2021
Finally, a cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2019 by 1.3 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.
The IRS has issued final regulations that provide guidance for employers on federal income tax withholding from employees’ wages.
The IRS has issued final regulations that provide guidance for employers on federal income tax withholding from employees’ wages. The final regulations:
- address the amount of federal income tax that employers withhold from employees’ wages;
- implement changes made by the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97); and
- reflect the redesigned Form W-4, Employee’s Withholding Certificate, and related IRS publications.
TCJA Changes
The TCJA made many amendments affecting income tax withholding on employees’ wages. The TCJA made many amendments affecting income tax withholding on employees’ wages.After the TCJA was enacted, the IRS issued guidance to implement the changes (for example, Notice 2018-14, I.R.B. 2018-7, 353; Notice 2018-92, I.R.B. 2018-51, 1038; Notice 2020-3, I.R.B. 2020-3, I.R.B. 2020-3, 330). The IRS updated Form W-4 and its instructions with significant changes intended to improve the accuracy of income tax withholding and make the withholding system more transparent for employees. It also released IRS Publication 15-T, Federal Income Tax Withholding Methods, which provides percentage method tables, wage bracket withholding tables, and other computational procedures for employers to use to compute withholding for the 2020 calendar year.
On February 13, 2020, the IRS published a notice of proposed rulemaking ( REG-132741-17) to update the regulations under Code Sec. 3401 and Code Sec. 3402 to reflect the legislative changes, and expand the rules to accommodate changes necessary to fully implement the redesigned Form W-4 and its related computational procedures, along with most existing computational procedures that apply to 2019 or earlier Forms W-4.
The final regulations adopt the proposed regulations with a few revisions.
Form W-4
The final regulations do not require all employees with a 2019 or earlier Form W-4 in effect to furnish a redesigned Form W-4. Comments expressed concerns that the proposed regulations and the related forms, instructions, publications, and other IRS guidance would require employers to maintain two different systems for computing income tax withholding on wages: one for 2019 or earlier Forms W-4, and another for the redesigned Forms W-4.
In response, the IRS is acknowledging concerns with (1) instructions to the redesigned Form W-4 for employees with multiple jobs and (2) optional computational “bridge” entries permitted under the regulations and described in Publication 15-T that will allow employers to continue in effect 2019 or earlier Forms W-4 as if the employees had furnished redesigned Forms W-4.
The final regulations revise Reg. §31.3402(f)(4)-1(a) to provide that an employer’s use of the computational bridge entries to adapt a 2019 or earlier Form W-4 to the redesigned computational procedures as if using entries on a redesigned Form W-4 will continue in effect such a Form W-4 that was properly in effect on or before December 31, 2019.
Lock-in Letters
The IRS issues a "lock-in" letter to notify an employer that an employee is not entitled to claim exemption from withholding, or is not entitled to the withholding allowance claimed on the employee’s Form W-4. The lock-in letter prescribes the withholding allowance the employer must use to figure withholding. After the lock-in letter becomes effective, the IRS may issue a subsequent modification notice, but only after the employee contacts the IRS to request an adjustment to the withholding prescribed in the lock-in letter.
Under the final regulations, employers are not required to notify the IRS that they no longer employ an employee for whom a lock-in letter was issued. Further, the final regulations do not require the IRS to reissue lock-in letters or modification notices solely because of the redesigned Form W-4.
The final regulations revise Reg. §31.3402(f)(2)-1(g)(2)(iv) relating to lock-in letters. and Reg. §31.3402(f)(2)-1(g)(2)(vii) relating to modification notices, to provide that an employer may comply with a lock-in letter or modification notice that is based on a 2019 or earlier Form W-4, as required by the regulations, if the employer implements the maximum withholding allowance and filing status permitted in a lock-in letter or modification notice by using the computational bridge entries as set forth in forms, instructions, publications, and other IRS guidance to calculate withholding for such a Form W-4.
Estimated Tax Payments
The final regulations revise Reg. §31.3402(m)-1(d) to allow employees to take estimated tax payments into account, as long as the employee (1) follows the instructions to the IRS’s Tax Withholding Estimator (available at https://www.irs.gov/individuals/tax-withholding-estimator) or IRS Publication 505, (2) is not subject to a lock-in letter or modification notice, and (3) does not request withholding from wages that falls below the pro rata share of income taxes attributable to wages determined under forms, instructions, publications, and other IRS guidance. The IRS intends to update its Tax Withholding Estimator and Publication 505 to reflect this rule.
Applicable Date
The final regulations generally apply on the date they are published in the Federal Register. Reg. §31.3402(f)(2)-1(g), regarding withholding compliance, applies as of February 13, 2020. Reg. §31.3402(f)(5)-1(a)(3), regarding the requirement to use the current version of Form W-4, applies as of March 16, 2020. The removal of Reg. §31.3402(h)(4)-1(b), regarding the combined income tax withholding and employee FICA tax withholding tables, applies on and after January 1, 2020.
Except for the removal of Reg. §31.3402(h)(4)-1(b), taxpayers may choose to apply the final regulations on and after January 1, 2020, and before their applicability date set forth in the regulations.