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In this edition
January 7, 2020

Key Financial Planning Impacts of SECURE Act

PODCAST:
Adoption Tax Credit 

New W-4 for Use in 2020

New IRS Mileage Reimbursement Rates for 2020

Tax Calendar

What to Do About Fraudulent Credit or Debit Card Charges
Key Financial Planning Impacts of SECURE Act
The SECURE Act was recently signed into law by President Trump. The legislation primarily impacts distributions from qualified retirement plans and Individual Retirement Accounts (IRA) but there are other provisions that affect contributions and kiddie tax. Most provisions in the legislation are effective for tax years beginning after December 31, 2019.

Distributions from IRAs Qualified Retirement Plans
Effective for plan participants and IRA owners who pass away after 2019:
  • A requirement for a non-spouse beneficiary to withdraw the IRA funds over a 10 year period – regardless of whether the plan participant/IRA owner had started distributions due to their Required Minimum Distribution (RMD). This is significant because typically if the owner of the IRA/Qualified plan was over age 70 ½, the distributions could be taken over the beneficiaries’ life expectancy and allow for a much greater wealth build-up. This effectively eliminates the Stretch IRA – when you put younger beneficiaries on a plan to reduce the amount of withdrawal. There are some limited exceptions to these rules. Those of you that have your spouse as beneficiary of your retirement plan may want to reconsider the impact this rule will have on your nonspouse beneficiaries.
  • The age 70 ½ year requirement to take minimum distributions from retirement plans and IRAs has been moved to age 72.
  • There is a new exception to the early distribution penalty in the case of the birth or adoption of a child.

Contributions
There are some minor changes to contributions in order to help people save for retirement:
  • Changes in the automatic enrollment for safe harbor contributions from 10% to 15%
  • Employers can make plan document changes until the 30th date of the last day of the plan year
  • 401K plans must make an offer to those employees who work between 500 and 1000 hours per year to contribute through salary deferrals (not get contributions) using either a 1 year of service requirement or three consecutive years of service where the employee works at least 500 hours

Kiddie Tax
The Tax Cuts and Jobs Act of 2017 changed the way Kiddie tax (the tax on children under age 23 who have unearned income) was calculated. In years prior to 2018, kiddie tax was calculated based upon the tax rate of the parents. The Tax Cuts and Jobs Act changed the kiddie tax to be at the tax rates of trusts. Trust tax rates are highly compressed, with the top tax rate at only $13,000 of income.

Under the SECURE Act, Kiddie tax is reverting to being taxed at the parent’s rate starting after 2019. There is also the ability to amend the 2018 return to apply the new rules to 2018 and the taxpayer/child can choose to apply the new rules to 2019 as well.
Contact: Robin Lutz, MT, CPA
Direct: 608.793.3120 
Email: rlutz@hawkinsashcpas.com
PODCAST:
Adoption Tax Credit 
Did know the IRS will offset some of the costs by giving people a tax credit? For adoptions finalized in 2019, the new parent can claim a credit of around up to $14,000 per child. I n this podcast, we cover how this credit can financially aid in the adoption process.
New W-4 for Use in 2020
The IRS has released a revised Form W-4 Employee’s Withholding Certificate to be used beginning in calendar year 2020. Form W-4 needed to be revised in order to more accurately calculate withholding due to the tax law changes made late in 2017.

The new Form W-4 can be completed using a simple method or a more comprehensive method. For the Simple method, only Steps 1 and 5 are required to be completed. Completing these few lines will only provide for withholding based upon the one job and no credits. There are no longer any withholding allowances. The status of married but withholding at higher single rate is now gone.

Employees can use Steps 2-4 if they want their withholding to be fine-tuned. Steps 2-4 of Form W-4 can affect withholding by taking into consideration second jobs, jobs of a spouse and credits.

Only employees hired in 2020 and employees who want to change their withholding need to use the revised W-4 for tax year 2020. Other employees can continue to use their original W-4 filing. You may, however, suggest to your employees that they do a paycheck withholding checkup at the IRS’ website http://www.irs.gov/W4App . The withholding calculator should be used when the employee has more than one job or has additional income. The estimator will give the employee an additional amount to be withheld from each paycheck.

Employees using the 2020 Form W-4 will need to complete a separate State withholding form (Wisconsin WT-4, Minnesota W-4MN). The Federal form will not coordinate to State withholding, which is still tied to the number of dependents.

Your payroll software should be able to handle both types of filing statuses (pre-2020 with withholding allowances, and post-2019). If you manually calculate withholding, however, you will need to use both the post-2019 Publication 15-T Federal Income Tax Withholding Methods and the pre-2020 Publication 15 Circular E tables.

As the employer, you can require that all employees complete new Forms W-4 and state withholding forms in order to make your payroll processing more streamlined.

Please let us know if we can answer any questions or assist you with helping your employees understand this new form.

Additional References:
Contact: Debbie Denny
Direct: 920.337.4558 
Email: ddenny@hawkinsashcpas.com
New IRS Mileage Reimbursement Rates for 2020
The IRS issued the 2020 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning Jan. 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) are as follows:

  • 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, and
  • 14 cents per mile driven in service of charitable organizations.

More details about the new standard mileage rates are available at https://www.irs.gov/newsroom/irs-issues-standard-mileage-rates-for-2020 .
Tax Calendar
January 15
Individual taxpayers’ final 2019 estimated tax payment is due.

January 31
File 2019 Forms W-2 (“Wage and Tax Statement”) with the Social Security Administration and provide copies to your employees.

File 2019 Forms 1099-MISC (“Miscellaneous Income”) reporting nonemployee compensation payments with the IRS and provide copies to recipients.

Most employers must file Form 941 (“Employer’s Quarterly Federal Tax Return”) to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2019. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 11 to file the return. Employers who have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944 (“Employer’s Annual Federal Tax Return”).

File Form 940 (“Employer’s Annual Federal Unemployment [FUTA] Tax Return”) for 2019. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 11 to file the return.

File Form 943 (“Employer’s Annual Federal Tax Return for Agricultural Employees”) to report Social Security, Medicare and withheld income taxes for 2019. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 11 to file the return.

File Form 945 (“Annual Return of Withheld Federal Income Tax”) for 2019 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on pensions, annuities, IRAs, etc. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 11 to file the return.

February 28
File 2019 Form 1096, along with copies of information returns with the IRS.

2019 tax returns must be filed or extended for calendar-year partnerships and S corporations. If the return isn’t extended, this is also the last day for those types of entities to make 2019 contributions to pension and profit-sharing plans.
What to Do About Fraudulent Credit or Debit Card Charges
It’s an awful feeling to learn that someone has used your credit or debit card to make fraudulent charges. Whether you’re liable typically depends on the type of card, whether you still possess the card and when you alert the issuer.

Credit Cards
If your card is lost or stolen and you report it to the card provider before your card is used in a fraudulent transaction, you can’t be held responsible for any unauthorized charges. If you report it after unauthorized charges have been made, you may be responsible for a specified dollar amount in charges. Some card issuers have decided not to hold their customers liable for any fraudulent charges regardless of when they notify the card company. And if your account number is stolen but not the actual card, your liability is $0. But either you or the card issuer must identify the fraudulent transactions for them to be removed.

When reporting a card loss or fraudulent transaction, contact the issuer via phone. Then follow up with a letter or email. This should include your account number, the date you noticed the card was missing (if applicable), and the date you initially reported the card loss or fraudulent transaction.

Debit Cards
If you report a missing debit card before any unauthorized transactions are made, you aren’t responsible for any unauthorized transactions. If you report a card loss within two business days after you learn of the loss, your maximum liability for unauthorized transactions is $50.

But if you report the card loss after two business days but within 60 calendar days of the date your statement showing an unauthorized transaction was mailed, liability can jump to $500. Finally, if you report the card loss more than 60 calendar days after your statement showing unauthorized transactions was mailed, you could be liable for all charges.
What if you notice an unauthorized debit card transaction on your statement, but your card is still in your possession? You have 60 calendar days after the statement showing the unauthorized transaction is mailed to report it and avoid liability.

Safest Choice
If you’re unsure about the specific conditions that trigger liability for unauthorized charges, contact your card issuer.
Contact: Jill Wrensch, EA
Direct: 715.384.1989
Email: jwrensch@hawkinsashcpas.com
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