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 2019.  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 $128,400 to $132,900.  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 2018.

In New Jersey, New York, and Connecticut, where no credit reductions are given, the effective FUTA tax rate is 0.6% for 2018.  For more information on state-specific credit reductions, refer to the Schedule A of Form 940.

NJ Unemployment and Disability – For 2019, the contribution rate will decrease from .615% to .595%, and the maximum taxable compensation subject to these deductions will increase from $33,700 to $34,400.  Therefore, the maximum that can be deducted from any one employee in 2019 is $204.68.

NJ Family Leave Insurance – This deduction will use the same wage base as the unemployment and disability wage base in 2019, which is $34,400.  The tax rate will decrease from .09% to .08%.  The maximum that can be deducted from any one employee will be $27.52 for 2019.

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 $11,100 to $11,400 in 2019.

Minimum Wage – There will be changes to the minimum wage in many states in 2019.  Locally, the New Jersey minimum wage will increase from $8.60 to $8.85; New York will continue to mandate different minimum wages depending on the location and type of work; and the Connecticut minimum wage remains at $10.10.  Please review your specific state’s requirements to determine your minimum wage responsibilities.

NJ Paid Sick Leave – New Jersey requires businesses to provide paid sick time to employees.  Make sure to follow up on the specific requirements.   This has been provided in prior email blasts.

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 remains at 6.625% in 2019.  Be sure to adjust your records and any computer programs that uses 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.

Withholding UpdateA new W-4, Employee’s Withholding Allowance Certificate, was released by the IRS.  This form is used to establish marital status and withholding allowances.  Highlights of the new form are:

  • Number of allowances is eliminated
  • New marital status box for Head of Household
  • New line for additional unearned income
  • New line for itemized deductions
  • New line for tax credits
  • New line for additional household income from multiple jobs
  • Line for additional withholding requested

While it is not required to file a new W-4, it may be to the advantage of the employees.

Supplemental WagesIf a supplemental wage payment is made separately from base wages, different methods need to be used to determine withholding taxes.  If the supplemental wage payment is under $1 million, for withholding taxes:

  • It can be combined with base wages and the appropriate withholding should be taken.
  • Withholding can be taken at 25% (no other percentage can be used).

If supplemental wage payments made during the year exceed $1 million, the withholding rate is 39.6% (or the highest rate of income tax for the year) on the portion in excess of $1 million.

Backup Withholding RateFor any payments subject to backup withholding, the rate is 24%

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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