Tax Reform

Treasury Assistant Secretary for Tax Policy David Kautter attended the AICPA National Tax Conference on November 13, 2019, and commented that significant TCJA-related guidance should be expected to be released before the end of 2019.  Such guidance is likely to include proposed regulations addressing (1) federal income tax withholding under section 3402, (2) the executive compensation deduction limitation under section 162(m), and (3) computation of unrelated business taxable income (UBTI) under section 512. 
Continue Reading Significant TCJA Guidance Due Before End of Year, Kautter Says

Reminiscent of Kermit’s lament, “it’s not easy to be green,” it has not been easy to be the Form W-4 since personal exemptions were eliminated by tax reform in 2017.  Two days after unveiling its new Tax Withholding Estimator, which is discussed in our post of August 6, 2019, today the IRS released “the second early release draft” of the 2020 Form W-4.  This latest version of the 2020 Form W-4 eliminates “Allowance” from its name, so that it will now be known as the “Employee’s Withholding Certificate.”  This revision to the name is consistent with the fact that employees may no longer claim withholding allowances.  In addition, for employees claiming exemption from withholding, the new draft of the 2020 Form W-4 eliminates the line provided for claiming exemption, which had appeared on the earlier version of the 2020 draft as Line 4d.  An employee claiming exemption must write “Exempt” under Line 4(c) and complete only Step 1 (Personal Information) and Step 5 (the employee’s signature) before submitting the form to the employer.
Continue Reading IRS Releases Revised Draft 2020 Form W-4

Today, the IRS unveiled its new Tax Withholding Estimator to help employees complete the Form W-4 and ensure that withholdings are sufficient to cover their income tax liability.  The new calculator was previewed in the draft 2020 Form W-4.  (See earlier coverage.)  A near-final draft 2020 Form W-4 is expected to be released soon.  Currently, the calculator provides guidance to employees regarding how to complete the 2019 Form W-4 based on the information they provide and whether they wish to match their withholding to their estimated tax liability or receive a refund.

The calculator has been updated to reflect the changes made to the Internal Revenue Code by 2017 tax reform legislation, such as the elimination of personal exemptions.   To use the calculator, an employee provides information regarding the income that he or she and his or her spouse earn at each job, tax withholding per pay period, and tax withholding year-to-date.  The calculator allows an employee to input information regarding qualified retirement plan contributions (it is worth noting that the results page displays only the amount included in box for the employee’s contribution, but the calculation appears to take into account any contribution made by a spouse), cafeteria plan salary reductions (for HSAs, FSAs, dependent care accounts, health insurance, adoption assistance, group-term life, etc.), and other pre-tax reductions, such as for qualified transportation fringes.  The prompt, however, does not make it clear what should be included in the total as employees may be unfamiliar with the term “cafeteria plan” and no reference is made in the prompt to qualified transportation fringes.  In addition, the income information asks for “wages” and if the employee inputs “taxable wages” from his or her paystub and then includes pre-tax deductions, the recommendations may result in too little withholding.  The calculator includes expandable tips that explain that “total wages” means “gross wages” before any pre-tax reductions, but employees may not complete the form without seeing the additional guidance, which is only visible if the employee clicks on a question mark.
Continue Reading IRS Releases Updated Tax Withholding Estimator

In our first post regarding the proposed section 1446(f) regulations, we addressed the rules regarding which party is the withholding agent for purposes of section 1446(f). Sections 864(c)(8) and 1446(f) were adopted as part of tax reform. Section 864(c)(8) was enacted to reverse the holding of the Tax Court in Grecian Magnesite Mining v. Commissioner, which was affirmed by the U.S. Court of Appeals for the DC Circuit. In our second post, we addressed the amount required to be withheld. In this post, we discuss the general reporting requirements for the transferor, the transferee, and the partnership. Further, we provide an overview of the new “backstop withholding” rules that will end the suspension of the partnership withholding requirement under section 1446(f)(4). The IRS suspended partnership withholding under section 1446(f)(4) under Notice 2018-29.
Continue Reading IRS Proposes Regulations under Section 1446(f) — Reporting Requirements and the “Backstop Withholding” Rules (Post 3 of 3)

In our first post on the proposed regulation under section 1446(f), we discussed which party is the withholding agent and outlined the various exceptions to withholding that could apply. Sections 864(c)(8) and 1446(f) were adopted as part of tax reform. Section 864(c)(8) was enacted to reverse the holding of the Tax Court in Grecian Magnesite Mining v. Commissioner, which was affirmed by the U.S. Court of Appeals for the DC Circuit. This post addresses the amount the transferee is required to withhold. Our third post on the proposed regulations under section 1446(f) addresses the withholding requirements and “backstop withholding” rules.
Continue Reading IRS Proposes Regulations under Section 1446(f) — Determining the Withholding Amount (Post 2 of 3)

This post is the first of three installments providing an overview of recent proposed regulations under section 1446(f) that address withholding on certain sales of partnership interests by foreign partners of a partnerships engaged in the conduct of a U.S. trade or business (a “U.S. trade or business”). Sections 864(c)(8) and 1446(f) were adopted as part of tax reform.  Section 864(c)(8) was enacted to reverse the holding of the Tax Court in Grecian Magnesite Mining v. Commissioner, which was affirmed by the U.S. Court of Appeals for the DC Circuit.  This post focuses on which party is required to withhold under section 1446(f). The second post focuses on determining the appropriate amount to withhold. Finally, the third post focuses on the withholding requirements and the “backstop withholding” rules.
Continue Reading IRS Proposes Regulations under Section 1446(f) — Which Party is Required to Withhold? (Post 1 of 3)

On February 14, 2019, Senator Roy Blunt (R-Mo.) introduced bill S. 503 “to provide the opportunity for responsible health savings to all American families.”  The bill would increase the annual maximum amount that can be contributed to health flexible spending accounts (“FSAs”) as well as permit unused benefits to carry forward by amending section 125(i) of the Internal Revenue Code.  Currently, the bill has been referred to the Senate Finance Committee.

A health FSA is an arrangement between an employer and employee in which an employee elects to set aside wages for the upcoming year to pay for out-of-pocket health expenses with pre-tax dollars.  Permissible health expenses are those medical expenses treated as deductible under section 213 of the Code, which includes insurance copays and deductibles, qualified prescription drugs, medical devices, etc.Continue Reading Proposed Senate Bill Would Expand Health FSA Limits

On March 7, 2019, Senator John Thune (R-SD) reintroduced legislation aimed at simplifying worker classification and requiring additional wage reporting under certain circumstances.  Senator Thune introduced the New Economy Works to Guarantee Independence and Growth Act (the “New GIG Act”) for the first time in 2017.  It was included in the chairman’s mark of the Tax Cuts and Jobs Act, but was ultimately removed because the bill was passed using the reconciliation procedure.  Rep. Tom Rice (R-SC) introduced the bill in the House.

Worker classification has long created headaches for service recipients, who may be unsure if they are required to withhold taxes from payments owed to service providers.  Under the Code and regulations, a service recipient’s withholding obligations depend on a common law worker classification test, which is often difficult to apply to gig economy service relationships.Continue Reading Bill Seeks to Provide Worker Classification Safe Harbor and Update Reporting Thresholds

As W.E. Hickson’s proverb goes, “if at first you don’t succeed, try, try, try again.”  At the end of February, Senators John Thune (R-S.D.), Sherrod Brown (D-Ohio), and 31 Senate co-sponsors reintroduced the Mobile Workforce State Income Tax Simplification Act of 2019 (S. 604).  Similar legislation has been introduced in every Congress for more than a decade, having passed the House on a voice vote but failing to receive a vote in the Senate.

The legislation would establish a 30 day de minimis presence threshold before a state or locality may require employers to withhold or report wages paid to nonresident employees working temporarily in a state other than the employee’s state of residence.  Similarly, no nonresident state income tax obligation could be imposed directly on an employee if the de minimis threshold in the nonresident state is not satisfied.  Employers and employees alike find the burden of nonresident state income tax compliance on temporary work assignments challenging.  Employers struggle to track employee work locations for withholding and reporting purposes, and employees chafe at the compliance burden associated with filing nonresident state income tax returns, especially for those states that require returns for working only one day in the state.  Although the proposed bill applies in the employment context, the relief does not apply to employees working as professional athletes, professional entertainers, qualified production employees, or certain public figures.Continue Reading Bipartisan Mobile Workforce Bill Would Simplify State Tax Compliance

Earlier today, the IRS released new percentage method withholding tables for 2018 implementing the changes to major withholding provisions following the enactment of tax reform legislation.  In the revised Notice 1036, the IRS provided new withholding tables utilizing the value of personal exemptions that would have existed in the…
Continue Reading IRS Releases Withholding Guidance