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Year-End Tax Updates

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October 22, 2019 | Barbara Baksa

Year-End Tax Updates

The end of the year always brings a few tax updates. Here are the ones that have been announced so far:

FICA Cost-of-Living Adjustment

Per the SSA’s announcement, the maximum amount of earnings subject to Social Security tax will increase to $137,700 in 2020 (up from $132,900 in 2019). The Social Security tax withholding rate will remain at 6.2%. With the new wage cap, the maximum withholding for Social Security will be $8,537.40 (pretty sure, but it’s never a bad idea to check my math).

Medicare tax rates also remain the same and are not subject to a maximum (the threshold at which the additional Medicare tax applies is likewise unchanged).

Thanks to Andrew Schwartz of Computershare for alerting me to the new Social Security wage base.

Draft Form 1040

The IRS continues to tinker with Form 1040. Readers will recall that the 2018 Form 1040 was reduced to the size of a (large) postcard. In response to feedback from the tax community, the draft of the 2019 Form 1040 is larger than a postcard but still smaller than a full sheet of paper. [Now that almost 90% of US taxpayers file electronically, it seems like the physical space that the form takes up is maybe not the best way to measure filing complexity. Just saying…]

One proposed change to the 2019 Form 1040 that is important to stock compensation is that a line to report capital gains has been added back to the first page of the form (see line 6 of the draft Form 1040). In 2018, capital gains were reported on Schedule 1 and were aggregated with all other Schedule 1 income on the face of Form 1040.

This change is arguably good news. Failing to report sales of stock on their tax returns is one of the most common mistakes employees make with their stock compensation. With a line for capital gains back on the face of the Form 1040, this may remind employees that they need to report capital gains and losses for sales of any stock acquired under their equity awards. (But, then again, it may make no difference at all for the majority of employees who file electronically.)

In any event, if you updated your employee communications last year to tell employees to report their capital gains and losses on Schedule 1, you’ll need to update your communications again (but wait until the draft Form 1040 is finalized, just in case the IRS changes its mind).

Thanks to Bruce Brumberg of myStockOptions.com for alerting me to the draft of the Form 1040.

- Barbara

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