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Issue Number:  2020-01

Inside This Issue

1. New Tax Withholding Estimator helps workers target their refund amounts
2. Payroll community feedback spurs development of Income Tax Withholding Assistant for Employers
3. IRS opens 2019 tax filing season for individual filers on Jan. 27
4. IRS launches new Gig Economy Tax Center to help workers and businesses
5. IRS revises 2020 Form W-4 to reflect extended 7.5% medical tax deduction floor
6. Standard mileage rates for 2020
7. New forms, instruction and publications on IRS.gov

The IRS’ new and improved Tax Withholding Estimator, is designed to help workers target the refund they want by having the right amount of federal income tax taken out of their pay. It incorporates the changes from the redesigned Form W-4, Employee's Withholding Certificate, that employees can fill out and give to their employers this year.

Based on the refund amount selected, and on the tax information entered by the user, the Tax Withholding Estimator will give the worker specific recommendations on how to fill out their W-4. This new feature allows users who seek either larger refunds at the end of the year or more money on their paychecks throughout the year to have just the right amount withheld to meet their preference.

Workers can check out the new Tax Withholding Estimator FAQs for even more information about the tool and how to interpret their results.

The new tool also features several other enhancements, including mobile-friendly design, handling of pension income, Social Security benefits and self-employment tax.

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The IRS created a new spreadsheet-based Income Tax Withholding Assistant for Employers tool based on feedback from the payroll community. It’s 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.

Find the free Microsoft Excel download on IRS.gov. Employers can use the tool to create a profile for each employee that then automatically calculates their correct federal income tax withholding.

The tool will help employers easily transition to the redesigned withholding system (no longer based on withholding allowances), which went into effect on Jan. 1. It can accommodate both the 2020 Form W-4 and Forms W-4 from prior years.

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The nation’s tax filing season opens on Monday, January 27, 2020, when the IRS begins accepting and processing 2019 tax year returns.

The IRS set a later opening date to ensure its key tax processing systems were secure and ready, and to address the potential effects of recent tax legislation on 2019 tax returns.

While taxpayers may prepare returns through the IRS' Free File program as well as many tax software companies and tax professionals before the start date, processing of those returns will begin after IRS systems open on the 27th.

Taxpayers can always find help 24 hours a day on www.IRS.gov.

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The IRS launched a new Gig Economy Tax Center on its IRS.gov website to educate gig economy (also known as the sharing, on-demand or access economy) workers about their tax obligations. Most of these workers don’t receive Forms W-2, or 1099. However, income from these sources is generally taxable, regardless of whether workers receive information returns.

The new Gig Economy Tax Center streamlines various resources, making it easier for workers and businesses to find information about the tax implications for the companies that provide the services and the individuals who perform them.

The new tax center offers tips and resources on topics including:

• Filing requirements
• Making quarterly estimated income tax payments
• Paying self-employment taxes
• Paying FICA, Medicare and Additional Medicare
• Deductible business expenses
• Special rules for reporting vacation home rentals

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The federal government spending bill (The Further Consolidated Appropriations Act, 2020 – HR 1865) signed into law on December 20, 2019, extends the 7.5% medical expense deduction floor through 2020. The floor will not revert to 10% as was set to happen in tax year 2019.

The IRS changed the 2020 Form W-2 to reflect this extended tax provision. The percentage in the text on line 1 of the Step 4(b) – Deductions Worksheet on page 3 of the 2020 Form W-4 was changed from 10% to 7.5%.

The IRS also made one minor editorial clarification on line 4 of that worksheet changing "from Schedule 1" to "from Part II of Schedule 1".

This revised Form W-4 became available on December 31, 2019.

Copies of the form printed or downloaded before this revision date, can still be used, but those forms will still show the incorrect percentage amount.

This percentage difference only affects a few people, and the impact is likely to be very small, if any. The IRS is currently updating its Tax Withholding Estimator to reflect the 7.5% medical expense deduction to help mitigate errors when taxpayers calculate their withholding estimates.

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Notice 2020-05 (pdf) contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Beginning on January 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 57.5 cents per mile driven for business use, down one half of a cent from the rate for 2019
• 17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019
• 14 cents per mile driven in service of charitable organizations

In addition, for employer-provided vehicles, the notice provides the maximum fair market value of automobiles first made available to employees for personal use in calendar year 2020 for which employers may use the fleet-average valuation rule in § 1.61-21(d)(5)(v) or the vehicle cents-per-mile valuation rule in § 1.61-21(e).

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New forms:

• Form 940 (PR), Employer's Annual Federal Unemployment (FUTA) Tax Return (Puerto Rico Version)
• Form 940 (PR) (Schedule A), Multi-State Employer and Credit Reduction Information (Puerto Rican Version)
• Form 1094-B, Transmittal of Health Coverage Information Returns
• Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns
• Form 1095-B, Health Coverage
• Form 1095-C, Employer-Provided Health Insurance Offer and Coverage
• Form W-3SS, Transmittal of Wage and Tax Statements (Info Copy Only) 2019
• Form W-3SS, Transmittal of Wage and Tax Statements (Info Copy Only) 2020
• Form W-3, Transmittal of Wage and Tax Statements (Info Copy Only) 2019
• Form W-3, Transmittal of Wage and Tax Statements (Info Copy Only) 2020
• Form W-4, Employee's Withholding Certificate
• Form W-4 (SP), Employee's Withholding Certificate (Spanish version)

New instructions:

• Inst 940 (PR), Instructions for Form 940 (PR), Employer's Annual Federal Unemployment (FUTA) Tax Return (Puerto Rico Version)
• Inst 1094-B and 1095-B, Instructions for Forms 1094-B and 1095-B
• Inst 1099-MISC, Instructions for Form 1099-MISC, Miscellaneous Income

New publications:

• Pub 15, Circular E, Employer's Tax Guide
• Pub 15-T, Federal Income Tax Withholding Methods
• Pub 5369, Gig economy and your taxes: things to know
• Pub 15-A, Employer's Supplemental Tax Guide (Supplement to Circular E, Employer's Tax Guide, Publication 15)

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