It is said death and taxes are for certain, but you can definitely add the complexity of the tax system to that mix. With that in mind, the...
It is said death and taxes are for certain, but you can definitely add the complexity of the tax system to that mix. With that in mind, the Internal Revenue Service (IRS) has launched the Income Tax Withholding Assistant for Employers. This is a new online assistant to help small businesses calculate income tax withholdings with greater ease.
According to the IRS, the new form has been simplified while increasing the transparency of the withholding system. What makes this possible is the redesign of the withholding system, which is no longer based on withholding allowances. This new system will go into effect on January 1, 2020.
For small businesses, it means an easier way to figure out the right amount of federal income tax to withhold from what their employees earn. All you have to do is fill out the newly redesigned 2020 Form W-4, Employee’s Withholding Certificate.
The IRS says this is the result of collaboration in the private segment, more specifically the payroll community. Chuck Rettig, IRS Commissioner, explains how this came bout in the press release.
Retting says, “We’ve been working closely with the payroll community and other partners to make improvements in the withholding process. As part of this effort and based on feedback from partners, the IRS has created a new spreadsheet-based tool that’s designed to help small businesses navigate a variety of situations involving their employees to help ensure the right amount of withholding.”
Income Tax Withholding Assistant for Employers
If you are an employer who is figuring out withholding manually, using a worksheet, the percentage method or wage bracket tables, the assistant will help you. However, employers using automated payroll systems won’t need this new assistant. This is because the system they have in place does the math for them.
With the assistant, you can create a profile for each employee and it then automatically calculates their correct federal income tax withholding. Once you create the profiles you input the frequency of the pay period (weekly, bi-weekly, or monthly as an example).
You follow up by specifying the version of the W-4 which applies to the employee and enter the information it requests. The information should be in the employee’s Form W-4. With the information in place, you save a copy of the spreadsheet with the employee’s name.
With each pay period, all you have to do is open the file and enter the wage or salary amount. The spreadsheet will then display the correct amount of federal income tax to withhold.
Simplifying the Tax Code
According to the National Taxpayers Union Foundation (NTU), since 2000 the U.S. tax code has expanded by over 37,000 words per year. On average this comes out to 417 changes each year.
Keeping up with all the changes can be a job in itself. And it is these changes that give small businesses the headaches of filing taxes year in and year out. Even though the new form and assistant are a step in the right direction, more needs to be done to make it easier for small entrepreneurs.
The Income Tax Withholding Assistant for Employers is available in Microsoft Excel for free. You can download it here.
Image: Depositphotos.com
This article, "IRS Tool Helps Small Businesses Calculate Income Tax Withholding" was first published on Small Business Trends
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