Federal Tax Withholding methods for 2020

[Brett_Cameron]

The IRS is dramatically changing the Form W-4 and the Employer methods for determining withholding amounts for 2020. They have published drafts of Form W-4 and Publication 15-T.

Background:
I am retired and receive both pension and Social Security. My Spouse receives Social Security. In the past, I have only had Federal Tax withheld from my pension to cover my estimated tax liability. My estimated tax liability is from a home-grown spreadsheet and is very accurate for my use. Up until now, I used my estimated tax liability and the previous employer withholding methods to figure out what to put on the W-4 for my pension. This has worked very well for many years.

The new method for 2020 and going forward hides all of the formulae from the taxpayer (me) and makes it very difficult for me to ensure that accurate withholding is accomplished.

Has anyone else looked at this and do you have any comments?

 

[GalaxyBoy]

My strategy is to withhold the “safe harbor” amount of at least what my tax liability was the previous year, and I’m doing it by withholding from my inherited IRA RMD.

 

[pb4uski]

....My estimated tax liability is from a home-grown spreadsheet and is very accurate for my use. Up until now, I used my estimated tax liability and the previous employer withholding methods to figure out what to put on the W-4 for my pension. This has worked very well for many years. ...

I haven't looked at it but I also do a home-grown spreadsheet that is very accurate calculation of my tax liability.... and my state income tax liability as well.

I finalize these tax estimates in late December and then do withdrawals from my tax deferred accounts with 99% withholding to "pay" my taxes for the year. It is better than estimated payments because even though the withholding isn't done until the last week of December, the IRS views it as having been made evenly throughout the year for underpayment penalty purposes.

 

[cathy63]

When working, I always just submitted new W-4s for each of us between our first and second paychecks of the year. Once I had the first pay stubs, I could figure out how much they would take if nothing changed, and then it was easy enough to do the math and adjust the "additional withholding" amounts to make the total for the year come out to what I wanted.

This method wouldn't work if the default withholding would be too high, but that was never a problem for us.

 

[OldShooter]

I combine @GalexyBoy's and @pb4's strategies. I pay the safe harbor amount in December through IRA withdrawals and 100% withholding. I am too lazy to estimate actual taxes due.

 

[Souschef]

I combine @GalexyBoy's and @pb4's strategies. I pay the safe harbor amount in December through IRA withdrawals and 100% withholding. I am too lazy to estimate actual taxes due.

To each his own. I calculate my safe harbor then plug into Federal and state EFTPS as Quarterly estimated payments. I set aside part of my RMD to cover th payments.

 

[kaneohe]

When working, I always just submitted new W-4s for each of us between our first and second paychecks of the year. Once I had the first pay stubs, I could figure out how much they would take if nothing changed, and then it was easy enough to do the math and adjust the "additional withholding" amounts to make the total for the year come out to what I wanted.

This method wouldn't work if the default withholding would be too high, but that was never a problem for us.

+1.......this worked well for me when working even tho I did not understand how the withholding formulas worked. You need to get basic under withholding so that you can have additional withholding ADDED. You could do it in the old days by increasing the number of allowances.

There will probably be an IRS withholding calculator similar to this
https://apps.irs.gov/app/tax-withholding-estimator/income-and-withholding
for 2020. You can understate your income so that the withholding is low and then add on the additional amount you want taken out per pay period.

 

[gwraigty]

It's a horrible idea to have to enter the amount of non-wage income so that it can be accounted for through paycheck withholding, if you have to turn this into your employer. Prior to this draft, that information was just entered on a worksheet that kept it confidential.

 

[pb4uski]

It's a horrible idea to have to enter the amount of non-wage income so that it can be accounted for through paycheck withholding, if you have to turn this into your employer. Prior to this draft, that information was just entered on a worksheet that kept it confidential.

You know that it is optional, right?

If you want tax withheld for other income you expect this year that won’thave withholding, enter the amount of other income here

 

[gwraigty]

You know that it is optional, right?

Yes. It's the way we've chosen to have taxes withheld for our taxable investment income, instead of making estimated payments for it. DH has been able to go into the system at work to make adjustments as necessary. If he can still do so under this new system, no problem for us. Not everyone may be able to do so. Who wants someone in payroll to know you have $30K in investment income?

I guess the workaround would be to figure it out manually and put in the extra amount to be withheld per pay, or make estimated tax payments for it, if you actually have to hand the form to payroll.

 

[pb4uski]

I see your point but there are plenty of workarounds so IMO NBD.

 

[googily]

I update my W4 electronically through the time and pay app. I doubt my employer ever really sees it. State, on the other hand, is still a signed piece of paper.

 

[Carple Tunnal]

I don't know how my employer will react to seeing that my entire paycheck goes to paying taxes.


First estimated tax payment isn't due until April 15, which should give plenty of time to get a handle on how much is being withheld from paycheck before making the first estimated tax payment.

 

[Brett_Cameron]

Thanks for the responses. I agree with pb4uski that there are plenty of workarounds so not such a big deal.

Edit: I figured it out. I can adopt the new method very easily into my spreadsheet and generate a number for additional withholding quite easily.

 

[rk911]

we make four quarterly payments equal to 100% of the prior year's taxes. i set up those payments on the EFTPS. payments are auto-withdrawn from our bank. no worries. no stress.

https://www.irs.gov/payments/eftps-the-electronic-federal-tax-payment-system

 

[pj.mask]

With dual workers, always withhold at least exemption and single rates. Still have to cough up extra on estimates based on last years taxes and whatever was rolled over from last return. This year I got behind so my paychecks will be very small for the rest of the year as I elected to withhold additional $$ amounts.

 

[Bir48die]

We withhold on everything. DW's pension and SS. My inherited IRA and Deferred Comp. My CG's over the years has been pretty steady so on my Deferred Comp I pick a specific dollar amount to cover those gains. So far no surprises.

 

[PatrickA5]

Through use of prior years Turbo Tax and an Income spreadsheet I develop each year, I'm able to get very close to what our taxable income will be - even a year in advance.

All of our WH is through DW paycheck. We claim "0" allowances and manipulate the "extra withholding" line to fine tune the withholdings. I never mess with filling out the worksheet or guessing on the number of allowances.

Having said that, our taxes are pretty simple these days. There's not a lot of income that we don't know in advance.

 

[Backpacker]

This is a timely reminder. 2019, my wife and I both had employment income and I adjusted withholding up to cover outside income. I really need to get in to turbotax and do some modeling for 2020. DW and I are both fully retired now, so only withholding is from her pension.