In review of the most significant tax-related developments of 2019, two most notable are the newly released draft of the IRS Form W-4, which promises to increase the transparency and accuracy of the withholding system, and the high possibility of Congress extending a number of temporary tax benefits that expired at the end of 2017 and 2018, or that will expire at the end of 2019, some of which are specifically mentioned below.
New W4 Draft
The Internal Revenue Service and Treasury released a draft Form W4 at the end of May for expected use in year 2020.
The primary purposes for the revised form are to simplify the withholding process while making the target more accurate. The revisions implement changes made following the 2017 Tax Cuts and Jobs Act, which had a severe impact on taxpayer withholding. The redesigned Form W-4 no longer uses the concept of withholding allowances, which was previously tied to the amount of the personal exemption. Due to changes in the law, personal exemptions are currently not a central feature of the tax code. Moreover, the expected draft reflects extensive feedback received from a payroll perspective. Whereas simplifying and facilitating its design for ease of use and implementation for employers was at the forefront of the template.
It is always encouraged to run a paycheck checkup at least quarterly to ensure withholding is on par for year end. Filling out Form W-4 properly can help taxpayers pay the correct amount of tax, avoid underpayment of tax, which may result in a penalty.
For review of the 2020 Draft W4 please click the following link: https://www.irs.gov/pub/irs-dft/fw4–dft.pdf
On June 20, 2019, after more than 11 hours of discussion, The House Ways and Means Committee voted to extend a number of tax breaks that would not only affect individual taxpayers in the coming tax years but also retroactively for the 2018 tax year. With the passage of the “tax extenders,”
• Debt forgiveness on principal residence mortgage would be nontaxable.
• Payments made for Private Mortgage Insurance (PMI) would be deductible and could retroactively affect the 2018 tax year.
• Medical expenses would continue to be subject to a favorable lower limit of 7.5% of Adjusted Gross Income (AGI) instead of the pre-TCJA AGI limit of 10%.
• The above-the-line deduction for tuition and related expenses which expired at the end of 2017 would be back retroactively for tax year 2018 and through tax year 2020.
• Several expired energy provisions would be revived, including energy efficient improvements made to personal residence.
• Employers would continue to enjoy the Work Opportunity Tax Credit for hiring certain types of workers, military veterans, who often face significant barriers to employment.
• Unfavorably, the post-TCJA estate tax exclusion of $11.4 million would return to the $5 million (plus-inflation) level at the end of 2022 instead of the intended expiration of Dec. 31, 2026.
In addition, other major family tax breaks are also considered in the bill for the 2019 and 2020 tax years:
• The maximum Earned Income Tax Credit (EITC) for adults without children would be tripled.
• The Child Tax Credit (CTC) would be fully refundable, meaning eligible taxpayers could receive a tax refund even if their tax liability is less than the CTC they are entitled to.
• The Child and Dependent Care Tax Credit (CDCTC) also would be refundable, and the maximum credit increased from 35 to 50 percent. The income phase-out would also be raised to allow for more eligible taxpayers.
Although the “tax extenders” would likely face many challenges on the other side of Capitol Hill, the approval of The House Ways and Means Committee definitely marks a positive step for reviving many tax breaks that primarily apply to individual taxpayers.
If you have any questions regarding the new Form W-4 and/or the “tax extenders” and how they impact you and your business, or require any other assistance with your tax planning and compliance needs, please call or email one of our knowledgeable team members.