Payroll Tax Rate Updates for 2017

In order to calculate payroll taxes accurately and effectively for your company and employees next year, it is important to understand the new and existing compliance requirements in effect for 2017.  Below is an overview of the tax rates, taxable wage bases and other updates that will affect your payroll processes when January 1 arrives.

Federal Insurance Contributions Act (FICA) – The wage base will increase from $118,500 to $127,200.  Under current law, the tax rate will remain at the rate of 6.2% to be paid by both the employer and the employee.

Medicare – There is no wage base for Medicare.  The tax rate is 1.45% to be withheld from the employee and 1.45% to be paid by the employer.

Additional Medicare Tax – An additional Medicare tax is payable over various threshold amounts depending on the filing status reported on the taxpayer’s personal income tax return.  This is a withholding tax withheld from the employee only and carries no tax requirement for the employer. For payroll tax purposes, the only relevant item is wages including taxable benefits paid.  

This additional Medicare tax should be deducted from the employee, at the rate of 0.9%, for all wages (and taxable benefits) paid in excess of $200,000.

Federal Unemployment Tax – The current gross FUTA tax rate is 6.0% of taxable wages, to be paid by the employer only.  However, an allowed credit effectively reduces the tax rate to a net of 0.6% for wages paid up to the wage limit of $7,000 (for the majority of states). The credit and reduced rate are available by filing the Form 940 for 2016.

In New Jersey, New York and Connecticut, where no credit reductions are given, the effective FUTA tax rate is 0.6% for 2016.  For more information on state-specific credit reductions, refer to the Schedule A of Form 940.

NJ Unemployment and Disability – For 2017, the contribution rate will increase from .625% to .665%, and the maximum taxable compensation subject to these deductions will increase from $32,600 to $33,500.  Therefore, the maximum that can be deducted from any one employee in 2017 is $222.78.

NJ Family Leave Insurance – This deduction will use the same wage base as the unemployment and disability wage base in 2017, which is $33,500.  The tax rate will increase from .08% to .10%.  The maximum that can be deducted from any one employee will be $33.50 for 2017.

NJ Payroll Tax Payments – As a reminder, payroll tax payments will only be accepted by New Jersey using an online payment method.  There will no longer be an option to call in the tax payments.

NY Unemployment Compensation – The maximum wages subject to New York unemployment tax will increase from $10,700 to $10,900 in 2017.

Minimum Wage – There will be changes to the minimum wage in many states in 2017.  Locally, the New Jersey minimum wage will increase from $8.38 to $8.44; New York will continue to mandate different minimum wages depending on the location and type of work; and the Connecticut minimum wage will increase from $9.60 to $10.10.  Please review your specific state’s requirements to determine your minimum wage responsibilities.

NJ Paid Sick Leave – There are thirteen cities in New Jersey that require businesses to provide paid sick time to employees: Bloomfield, East Orange, Elizabeth, Irvington, Jersey City, Montclair, Morristown, New Brunswick, Newark, Passaic, Paterson, Plainfield and Trenton.  Make sure to follow up on the specific requirements for your city, if applicable.

New Jersey/Pennsylvania Reciprocity Tax Agreement – In September of 2016, Governor Christie announced the end of this reciprocity agreement, only to rescind the ending of this agreement the following November.  Therefore, the reciprocity agreement will continue, which means that any NJ employee working in PA will be subject to NJ tax withholdings, and any PA employee working in NJ will be subject to PA withholdings.

PEO (Professional Employer Organization) – As a reminder, if your company uses a PEO, make sure that the organization has received the new IRS PEO Certification.  This will relieve your company of withholding tax responsibility.

NJ Sales Tax – The NJ Sales Tax rate decreases from 7% to 6.875% effective January 1, 2017.  Be sure to adjust your records and any computer programs that use this information.

Newark Payroll Tax – The Newark payroll tax rate is 1% of wages for services performed within Newark, for services supervised from Newark and for wages of employees who principally report to a location in Newark.  If the total wages are less than $2,500, no tax is due.  The Newark payroll tax return is due quarterly with the appropriate payment.

NY MTA Payroll Tax – There is a tax on wages for employees who work within the MTA district in NY.  This tax is on a graduated rate from .11% to .34%.  If the total wages for the quarter do not exceed $312,500, there is no tax liability.

Form I-9 (Employment Eligibility Verification – Department of Homeland Security – US Citizenship and Immigration Service) – A new version of this form was issued on November 11, 2016.  The changes are designed to simplify the process of completing the form and to streamline the certification process.  Employers are required to use the new form effective January 22, 2017.  Until then, either the new form or the prior version may be used.

As we continue into the new year, Sax will keep you informed of any additional changes made to the above outline of payroll tax rates and wage bases. For further information, please contact Alan S. Isaacs, CPA, MBA at [email protected].

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