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2020 Payroll Tax Highlights

As employers begin preparing for the new year, MFA has compiled this summary of some important payroll tax items to keep in mind. Although 2019 did not see the same breadth of changes that the Tax Cuts and Jobs Act (TCJA) brought in 2018, many employers are still working to integrate the law’s impacts to benefits such as relocation expenses. In 2020, employers will be facing another TCJA-related change: the updated Form W-4.

This article provides employers with an overview of those items, as well as important due dates and best practices to keep in mind when preparing W-2s and planning for the new tax year.

2019 Information Return Due Dates and Filing Requirements

Form & Title Which Government Agency to File With File by Furnish to Recipient by E-filing Mandate
W-2, Wage and Tax Statement Social Security Administration January 31, 2020, whether filing paper or electronic returns January 31, 2020 E-file required if filing 250 or more Forms W-2
1099-MISC, Miscellaneous Income[1] IRS February 28, 2020,[2]
if filing paper
March 31, 2020,
if filing electronically
Exception: Forms 1099-MISC reporting nonemployee compensation in Box 7 due January 31, 2020, whether filing paper or electronic returns
January 31, 2020 E-file required if filing 250 or more Forms 1099-MISC
3921, Exercise of an Incentive Stock Option Under Section 422(b)
&
3922, Transfer of Stock Acquired Through an Employee Stock Purchase Plan
IRS February 28, 2020,[3] 
if filing paper
March 31, 2020,
if filing electronically
January 31, 2020 E-file required if filing 250 or more Forms 3921 or 3922

Looking Ahead: 2020

Revised Form W-4 Employee’s Withholding Certificate
Beginning in 2020, employees will have access to a redesigned Form W-4 to report information needed for their employer to correctly withhold federal income tax. The redesigned Form W-4 no longer uses the concept of withholding allowances to compute federal withholding. Instead, the Form W-4 will contain a series of simplified steps for employees to report job, income and deduction amounts directly to compute withholding accurately.

Employees who have submitted Form W-4 in any year before 2020 are not required to submit a new form merely because of the redesign. Employers will continue to compute withholding based on the information from the employee’s most recently submitted Form W-4. However, beginning in 2020, all new employees must use the redesigned form, and any employees hired prior to 2020 who wish to adjust their withholding must use the redesigned form. A Form W-4 claiming exemption from withholding is valid for only the calendar year in which it’s filed with the employer. To continue to be exempt from withholding in the next year, an employee must give the employer a new Form W-4 claiming exempt status by February 15 of that year.  In 2020 employees must use the redesigned form for this purpose.

MFA Observations
The final, redesigned Form W-4 for 2020 was released on December 5, 2019.  In anticipation of releasing the final version of the redesigned Form W-4, IRS published FAQs on the draft 2020 Form W-4. IRS is also encouraging everyone to perform a “paycheck checkup” to determine whether adjustments to withholding elections may be beneficial. IRS has created a Tax Withholding Estimator to conduct the “paycheck checkup.” To prepare for the redesigned 2020 Form W-4, employers may consider providing employees with an informational alert to communicate the Form W-4 changes and the importance of conducting a ”paycheck checkup,” without offering specific tax or legal advice.

New Limits and New Wage-bases
Employers should begin to input or confirm payroll system utilization of 2020 Social Security, state unemployment, state disability and other similar taxable wage-limits and tax rate information. The Social Security Administration announced that the 2020 wage-base will be $137,700, which is an increase of $4,800 from $132,900 in 2019. Many states have also begun releasing updates to their unemployment and disability wage-bases. Employers using third-party providers should test the third-party’s system requirements before the first live payroll in 2020.

SUI Rate Review
The 2020 state unemployment insurance (SUI) tax rate season has already begun in some states. Employers should be on the lookout for 2020 contribution rate notices in the states with which they are registered as an employer for SUI purposes. It is important that employers review contribution rates as soon as possible after receiving them because there is a limited amount of time to protest the rate calculation if the employer deems it to be incorrect. Additionally, employers should be aware of two potential SUI tax savings opportunities: voluntary contributions and joint accounts.

Tax Reform Reminders for Payroll Tax[4]

Relocation Expenses
Under the TCJA, employer reimbursements for relocation expenses made to an employee or paid directly to third parties on or after January 1, 2018, are includible in the employee’s wages and subject to FITW, FICA, and FUTA, with the exception of relocation expenses related to Armed Forces members on active duty.

Employers should be aware that not all states have changed their laws to fully conform to the TCJA. In states that have not fully conformed to the TCJA, employer payments for job-related relocation expenses may continue to be excludible from the employee’s state taxable wages.

Transportation Fringe Benefits
TCJA disallowed an employer’s deduction (and created unrelated taxable business income for tax exempt employers) for the cost of providing any transportation fringe benefits under Section 132(f) (i.e., qualified van pools, qualified parking at or near the workplace, and transit benefits), except as necessary to ensure the employee’s safety.

Employers should note that there is no change to the federal income or employment tax treatment of van pool, employee parking, and transit benefits.  In other words, employers may continue to offer transportation fringe benefits and may continue to exclude the allowable amount of qualified transportation fringe benefits from employee wages.

For more information on these and other TCJA changes impacting payroll practitioners, please reach out to a member of the MFA Tax Team.

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[1] Effective August 3, 2018, extensions of time to file Form 1099-MISC reporting nonemployee compensation to the IRS are no longer automatic. Employers may request one 30-day extension to file Form 1099-MISC by completing Form 8809, Application for Extension of Time to File Information Returns, including a detailed explanation of why the employer needs additional time.
[2] Note that even though 2020 is a “leap year,” the instructions to Form 1099 state that the filing deadline is Friday, February 28, 2020 (not Saturday, February 29, 2020). Filing deadlines that fall on a Saturday, Sunday or holiday are generally extended to the next business day.
[3] See Footnote 2 above.
[4] All changes are effective beginning on January 1, 2018, through December 31, 2025, unless otherwise indicated.

Greg Still

Greg Still

CPA, MST
Director

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