Helpful information for taxpayers on backup withholding

Taxpayers who receive certain types of income may have backup withholding deducted from these payments. Backup withholding can apply to most payments reported on certain Forms 1099 and W-2G.

Here are some facts to help taxpayers understand backup withholding.

Backup withholding is required on certain non-payroll amounts when certain conditions apply.

The payer making such payments to the payee doesn’t generally withhold taxes, and the payees report and pay taxes on this income when they file their federal tax returns. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income.

Backup withholding is set at a specific percentage.

The current percentage is 24 percent.

Payments subject to backup withholding include:

• Interest payments
• Dividends
• Payment card and third-party network transactions
• Patronage dividends, but only if at least half the payment is in money
• Rents, profits or other gains
• Commissions, fees or other payments for work done as an independent contractor
• Payments by brokers
• Barter exchanges
• Payments by fishing boat operators, but only the part that is paid in actual money and that represents a share of the proceeds of the catch
• Royalty payments
• Gambling winnings, if not subject to gambling withholding
• Taxable grants
• Agriculture payments

Examples when the payer must deduct backup withholding:

• If a payee has not provided the payer a Taxpayer Identification Number.
– A TIN specifically identifies the payee.
– TINs include Social Security numbers, Employer Identification Numbers, Individual Taxpayer Identification Numbers and Adoption Taxpayer Identification Numbers.

• If the IRS notified the payer that the payee provided an incorrect TIN; that is the TIN does not match the name in IRS records. Payees should make sure that the payer has their correct name and TIN to avoid backup withholding.

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Choosing a trustworthy payroll service provider can protect employers from fraud

When hiring a company to handle payroll and payroll tax, employers should carefully choose their payroll service provider. This can help a business avoid missed deposits for employment taxes and other unpaid bills.

Most of these businesses provide quality service but there are some who don’t have their clients’ best interests in mind. Each year, there are a few payroll service providers who don’t submit their client’s payroll taxes and closedown abruptly. The damage hits their unsuspecting clients hard.

Typically, these clients remain legally responsible for paying the taxes due, even if the employer sent funds to the payroll service provider for required deposits or payments.

Employers should understand their payroll and employment tax responsibilities and choose a trusted payroll service to handle this important job. Here are two options:

• A certified professional employer organization. Typically, CPEOs are solely liable for paying the customer’s employment taxes, filing returns, and making deposits and payments for the taxes reported related to wages and other compensation.
• Reporting agent. This is a payroll service provider that informs the IRS of its relationship with a client using Form 8655, Reporting Agent Authorization, which is signed by the client. Reporting agents must deposit a client’s taxes using the Electronic Federal Tax Payment System and can exchange information with the IRS on behalf of a client, such as to resolve an issue. They are also required to provide clients a written statement reminding the employer that it, not the reporting agent, is ultimately responsible for the timely filing of returns and payment of taxes.

IRS encourages employers to enroll in EFTPS and make sure its payroll service provider uses EFTPS to make tax deposits. It’s free and it gives employers safe and easy online access to their payment history when deposits are made under their Employer Identification Number, enabling them to monitor whether their payroll service provider is meeting its tax deposit responsibilities.

Employers should contact the IRS about any bills or notices received, especially payments managed by a third party. Call the number on the bill, write to the IRS office that sent the bill, contact the IRS business tax hotline at 800-829-4933, or visit a local IRS office.

Accounting Services of York is a Reporting Agent.

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Tips for taxpayers who need to file a new W-4

All taxpayers should review their withholding annually. They can use the IRS Tax Withholding Estimator to check and make sure they’re not having too little or too much federal tax withheld. This tool offers workers, retirees and self-employed individuals a step-by-step method to help figure out if they should adjust their withholding.

Those who need to adjust their withholding should submit a new Form W-4, Employee’s Withholding Certificate to their employer.

People who should check their withholding include those:

• who are part of two-income families
• working two or more jobs or who only work for part of the year
• with children who claim credits such as the child tax credit
• with older dependents, including children age 17 or older
• who itemized deductions on their 2019 tax return
• with high incomes and more complex tax returns
• with large tax refunds or large tax bills for 2019
• who received unemployment at any time during the year

The IRS Tax Withholding Estimator can help taxpayers check their withholding.

• This tool will help determine if they should complete a new Form W-4.
• It will also help users determine what information to put on a new Form W-4.
• It will save them time because they don’t need to complete the form worksheets. The Estimator does the worksheet calculations.

Taxpayers who complete a new Form W-4 should submit it to their employer as soon as possible. With withholding occurring throughout the year, it’s better to take this step sooner, rather than later.

People should generally increase withholding if they hold more than one job at a time or have income from sources not subject to withholding. If adjustments aren’t made for these situations, they will likely owe additional tax and possibly penalties when filing their tax return.

On the other hand, people should generally decrease their withholding if they are eligible for income tax credits or deductions other than the basic standard deduction.

Having the most recent pay statements, information for other income sources and the most recent income tax return can help taxpayers use the Withholding Estimator to figure out their correct withholding.

They might also need to adjust their state or local withholding. They can contact their state’s department of revenue to learn more.

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Why You Need to Consider Outsourcing in 2020

Outsourcing is a growing trend with seemingly countless benefits. Typically, responsibilities such as accounting and financial decision-making, marketing, and programming will be among the first that businesses make the decision to outsource. By delegating these tasks to experts, your business will be able to not only save money but also save time that can be used to advance other business objectives.Jan 16th 2020

stressed man being handed many things

With the beginning of a new year, countless businesses are reevaluating their strategies and their general operational approach. While some of these businesses will elect to make some minor tweaks and adjustments in-house, others will decide to outsource many of their operations and turn to specialized experts.

Outsourcing is a growing trend with seemingly countless benefits. Typically, responsibilities such as accounting and financial decision-making, marketing, and programming will be among the first that businesses make the decision to outsource. By delegating these tasks to experts, your business will be able to not only save money but also save time that can be used to advance other business objectives.

If your business has never outsourced work before, you likely have a lot of questions. How much does outsourcing typically cost? What are the primary benefits of outsourcing? How can my business find an outsourcing partner that can maximize our organization’s full potential?

In this article, we will discuss the most important things for you to know about outsourcing in 2020. By understanding why businesses, of all varieties, make this crucial decision each year, you’ll be able to generate a reliable plan for your business.

The Benefits of Outsourcing

Businesses outsource in order to save money. In fact, according to recent surveys, 59 percent of businesses choose to outsource in order to reduce their expenses. There are quite a few reasons why outsourcing certain business functions can be cost-effective. Not only will your outsourcing partner operate via an economy of scale (allowing you to purchase goods and services at a discount), but they will also have the infrastructure in place in order to help your business operate more efficiently. Furthermore, your business may find itself in a situation where it needs a “fraction” of a specific service without making a full commitment. In response, fractional CFOs and other services have become extremely popular in the digital era.

Businesses also choose to outsource in order to gain access to experts. Regardless of how smart or well-versed a business owner might be, it is incredibly unlikely that they know how to do everything as well as a certified expert. In fact, according to Deloitte, two of the most common reasons for outsourcing include improved performance (62 percent) and reduced errors (53 percent). Because only a fraction of business owners have accounting or financial experience, these functions are often among the first to be outsourced.

Furthermore, businesses look to outsource in order to access new systems, structures and technologies. The aforementioned survey revealed that 51 percent of businesses choose to outsource in order to access new technologies. In the world of digital accounting specifically, 93 percent of businesses hope to incorporate cloud technologies into their accounting practices. By working with the cloud and various other eCommerce tools, businesses can operate more effectively and access crucial decision-making information from anywhere in the world.

Commonly Outsourced Responsibilities

Accounting and finance are often among the first set of duties to be outsourced. These tasks, which require considerable attention to detail and expertise, can help businesses protect themselves from financial and legal hazards while also finding creative methods to improve their bottom line. An outsourced accountant can help your business organize (or reorganize) your books, prepare its taxes, generate long-term financial projections, establish an eCommerce platform and much more.

A 2018 Client Accounting Services (CAS) Survey revealed that about 80 percent of all businesses would refer their outsourced accountant to another business. However, accounting isn’t the only field where businesses are happy with their outsourcing partners. Legal, software development, marketing, and payment processing are all frequently outsourced as well. Even many of today’s Fortune 500 companies will make the decision to outsource.

Making the Decision to Outsource

Naturally, whether your business should make the decision to outsource will depend on many different factors. When deciding if outsourcing is appropriate for your business, you will need to do so using a comprehensive framework that accounts for opportunity costs.

Suppose that your business’ accounting responsibilities require 100 hours of work per month. If you consider each hour of work to be worth $40 (or whatever number you deem fit), this means your business’ total accounting costs will amount to $4,000 per month ($48,000 per year). However, if your business could generate $50 worth of revenue for every operational hour that it gains, this means you are missing out on $5,000 per month ($60,000 per year) in positive cash flows.

In this situation, when all else is equal, making the decision to outsource would initially have a $12,000 annual impact on your bottom line. When factors such as added tax deductions and better financial practices are accounted for, the amount your business can save with an outsourced accountant will be even greater.

While this hypothetical situation is obviously simplified, it demonstrates that the financial benefits of outsourcing may be even greater than you initially assumed. Your business, regardless of its size, only has a finite number of resources—it will be in your best interest to use these resources as efficiently as you possibly can.

Finding the Perfect Outsourcing Partner

With so many outsourcing options available to choose from, it can be difficult to know where to begin your search. Fortunately, the digital era makes it easy to find outsourced accountants, fractional CFOs and whatever outsourced help you might need.

When comparing potential partners, be sure to conduct a preliminary interview. Ask questions about the firm’s qualifications, experiences and other important details. Identify which services the firm offers and see if there are discounts available for bundling multiple services into a single (highly personalized) package. New technology makes it easy to access countless different outsourced firms, which may be located in different states or even in different countries.

2020 is the perfect year for your business to outsource its accounting needs or outsource various other responsibilities. Outsourcing can help your business gain access to expertise, use its resources more efficiently and, ultimately, improve its bottom line. Whether you are looking for a digital accountant or anyone else, you may want to consider outsourcing and gain access to these desirable benefits.

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Improved Tax Withholding Estimator helps workers target the refund they want; shows how to fill out new 2020 W-4

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WASHINGTON — The Internal Revenue Service has launched a new and improved Tax Withholding Estimator, designed to help workers target the refund they want by having the right amount of federal income tax taken out of their pay.

The Tax Withholding Estimator, now available on, incorporates the changes from the redesigned Form W-4, Employee’s Withholding Certificate, that employees can fill out and give to their employers this year.

The IRS urges everyone to see if they need to adjust their withholding by using the Tax Withholding Estimator to perform a Paycheck Checkup. If an adjustment is needed, the Tax Withholding Estimator gives specific recommendations on how to fill out their employer’s online Form W-4 or provides the PDF form with key parts filled out.

To help workers more effectively adjust their withholding, the improved Tax Withholding Estimator features a customized refund slider that allows users to choose the refund amount they prefer from a range of different refund amounts. The exact refund range shown is customized based on the tax information entered by that user.

Based on the refund amount selected, the Tax Withholding Estimator will give the worker specific recommendations on how to fill out their W-4. This new feature allows users who seek either larger refunds at the end of the year or more money on their paychecks throughout the year to have just the right amount withheld to meet their preference.

The new Tax Withholding Estimator also features several other enhancements, including one allowing anyone who expects to receive a bonus to indicate whether tax will be withheld. In addition, improvements added last summer continue to be available, including mobile-friendly design, handling of pension income, Social Security benefits and self-employment tax.

Starting in 2020, income tax withholding is no longer based on an employee’s marital status and withholding allowances, tied to the value of the personal exemption. Instead, income tax withholding is generally based on the worker’s expected filing status and standard deduction for the year. In addition, workers can choose to have itemized deductions, the Child Tax Credit and other tax benefits reflected in their withholding for the year.

It is important for people with more than one job at a time (including families in which both spouses work) to adjust their withholding to avoid having too little withheld. Using the Tax Withholding Estimator is the most accurate way to do this. As in the past, employees can also choose to have an employer withhold an additional flat-dollar amount each pay period to cover, for example, income they receive from the gig economy, self-employment, or other sources that is not subject to withholding.

For more information about the updated Tax Withholding Estimator and the redesigned 2020 Form W-4, visit

Local IRS Offices

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National Association of Tax Professionals