Your Finance team, particularly staffers from other departments that have been assigned Payroll tasks, may still be adjusting to Tax Cuts and Jobs Act changes that went into effect in 2020.
For instance, there are now six worksheets that take the place of federal tax withholding formulas. Each of those worksheets has its own table for determining proper withholding.
While organizations with an automated Payroll system only have to be concerned with one of these worksheets per employee, there are four worksheets that specifically apply to companies with manual systems.
Here’s a breakdown of which is which:
- Worksheet 1 “Percentage Method Tables for Automated Payroll Systems and Withholding on Periodic Payments of Pensions and Annuities.” In the Premier Leaning Solutions online workshop “Payroll Taxes 101: Withholding, Depositing & Reporting Requirements,” Vicki Lambert, CPP, noted that using this worksheet within an automated system saves a lot of time. She said an employee’s pay period withholding calculations that used to take 10-15 minutes are now done in “less than a nanosecond.”
- Worksheet 1B “Payer’s Worksheet for Figuring Withholding from Periodic Pension or Annuity Payments.” This worksheet was added this year, according to Lambert.
- Worksheet 2 “Employer’s Withholding Worksheet for Wage Bracket Method Tables for Manual Payroll Systems with Forms W-4 from 2020 or Later”
- Worksheet 3 “Employer’s Withholding Worksheet for Wage Bracket Method Tables for Manual Payroll Systems with Forms W-4 from 2019 or Earlier“
- Worksheet 4 “Employer’s Withholding Worksheet for Percentage Method Tables for Manual Payroll Systems with Forms W-4 from 2020 or Later,” and
- Worksheet 5 “Employer’s Withholding Worksheet for Percentage Method Tables for Manual Payroll Systems with Forms W-4 from 2019 or Earlier.”
To navigate these forms, Lambert recommended IRS Publication 15-T, “Federal Income Tax Withholding Methods,” because it includes:
- guidance on how to treat the legacy 2019 and earlier Forms W-4 as if they were W-4s from 2020 or later
- all tax tables
- all worksheets and charts
- instructions on how to handle employees that claim to be exempt from withholding, and
- instructions on how to handle withholding for nonresident alien employees.
Better payroll management
To improve efficiency and help you stay compliant with FICA, FUTA, state and local government tax obligations, some strategies include deploying software in-house, automated cloud-based systems and outsourcing to a third party.
Processing payroll via your accounting software may be an option. However, does the payroll function include important features like tracking employee benefits deductions and work time and attendance?
An understandable reason for outsourcing is getting help with staying up to date on complex tax codes and their annual changes. However, in some cases payroll services can cost more than automation software. Plus, there are still risks like paycheck errors and unsecured personal employee information.
Payroll software tends to be targeted toward company size and isn’t one-size-fits-all. While making a list of what your firm’s must-haves are, a good place to start is this Vendor Comparison Guide from BetterBuys.com.
