Dec 19 PAYROLL TAX RATE UPDATES FOR 2023
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 2023. Below is an overview of the tax rates, taxable wage bases, and other updates impacting your payroll processes when January 1 arrives.
Federal Insurance Contributions Act (FICA)
The wage base will increase from $147,000 to $160,200. Under current law, the tax rate will remain the same at the rate of 6.2%, to be paid by both the employer and the employee. The maximum tax will increase from $9,114.00 to $9,932.40.
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 Form 940 for 2022.
In New Jersey, where no credit reduction exists, the effective FUTA tax rate is 0.6% for 2022. There is a credit reduction in California, Connecticut, and Illinois, and New York, resulting in an effective FUTA tax rate of 0.9% for 2022. For more information on state-specific credit reductions, refer to the Schedule A of Form 940, which will indicate the previously mentioned states subject to credit reduction for the 2022 filing.
NJ Unemployment and Disability
For 2023, the employer base for unemployment and disability will increase from $39,800 to $41,100. The employer rate for these taxes is determined by the State and sent in a notice in July. The unemployment base for the employee will increase from $39,800 to $41,100 while the rate will remain the same at .425%. The maximum tax will increase from $169.15 to $174.68.
The base for disability for the employee will increase from $151,900 to $156,800, and the tax rate will decrease from .14% to .0%. This will reduce the maximum tax from $212.66 to $0.00.
NJ Family Leave Insurance
The wage base and rate will both change in 2023. The wage base for the employee will increase from $151,900 to $156,800, and the tax rate will decrease from .14% to .06%. This will reduce the maximum tax from $212.66 to $94.08.
NJ Payroll Tax Payments
As a reminder, New Jersey will only accept payroll tax payments 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 the New York unemployment tax will increase from $12,000 to $12,300 in 2023.
There will be changes to the minimum wage in many states in 2023. Locally, the New Jersey minimum wage will increase from $11.90 to $12.93 for under five employees, and for six or more employees, it will increase to $14.13.
New York will continue to mandate different minimum wages depending on the location and type of work.
The Connecticut minimum wage increased to $14.00 on July 1, 2022, and will change to $15.00 on July 1, 2023.
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. Please reference Sax’s “New Jersey Paid Sick Leave Update” alert for more information.
PEO (Professional Employer Organization)
If your company uses a PEO, ensure that the organization has received the 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 2023. Be sure to review 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. No tax is due if the total wages are less than $2,500 per quarter. 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 those performed outside Jersey City but supervised within Jersey City. Employees living within Jersey City are excluded. No tax is due if the total wages are less than $2,500 per quarter. 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 October 21, 2019. The changes are designed to simplify the process of completing the form and to streamline the certification process.
The IRS released a new W-4, Employee’s Withholding Allowance Certificate, for 2020. New employees are required to complete the new W-4 while existing employees can continue to have the W-4 on file with the employer or complete a new form.
Different methods must be used to determine withholding taxes if a supplemental wage payment is made separately from base wages. 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. Alternatively, 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 income tax rate 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 inform you 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].