PAYROLL TAX RATE UPDATES FOR 2020
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 2020. 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 $132,900 to $137,700. Under current law, the tax rate will remain at the rate of 6.2% to be paid by both the employer and the employee.
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 2019.
In New Jersey, New York, and Connecticut, where no credit reductions are given, the effective FUTA tax rate is 0.6% for 2019. For more information on state-specific credit reductions, refer to the Schedule A of Form 940.
NJ Unemployment and Disability
For 2020, there are significant changes in the rates and the base. Please see Sax’s recent alert covering this topic here: “Significant Updates Made to New Jersey Payroll and Federal Form W-4”.
NJ Family Leave Insurance
The wage base and rate significantly changed for 2020. Please see Sax’s recent alert covering this topic here: “Significant Updates Made to New Jersey Payroll and Federal Form W-4”.
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 $11,400 to $11,600 in 2020.
There will be changes to the minimum wage in many states in 2020. Locally, the New Jersey minimum wage will increase from $8.85 to $10.30 for under five employees and for six or more employees it will increase to $11.00.
New York will continue to mandate different minimum wages depending on the location and type of work.
The Connecticut minimum wage will increase to $12.00 on September 1, 2020. 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. For more information, please reference Sax’s alert on this topic: “New Jersey Paid Sick Leave Update”.
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 2020. 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.
Jersey City Payroll Tax
The Jersey City payroll tax rate is 1% of wages for services performed within Jersey City and for services performed outside Jersey City but supervised within Jersey City. Employees living within Jersey City are excluded. If the total wages are less than $2,500, no tax is due. The Jersey City payroll tax return is due quarterly with the appropriated 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.
A new W-4, Employee’s Withholding Allowance Certificate, was released by the IRS. Please see Sax’s recent alert covering this topic here: “Significant Updates Made to New Jersey Payroll and Federal Form W-4”.
If 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 22% (no other percentage can be used).
- If supplemental wage payments made during the year exceed $1 million, the withholding rate is 37% (or the highest rate of income tax for the year) on the portion in excess of $1 million.
Backup Withholding Rate
For 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 Sax advisor Alan S. Isaacs, CPA, MBA at [email protected].