Employers need to be aware of payroll tax changes that have taken effect. Below is an overview of some of the changes, prepared by Jackie Cook, a senior manager in our entrepreneurial services group. Please contact your KraftCPAs advisor if you have questions or need additional information.
- The Internal Revenue Service has released new federal income tax withholding tables. Be sure to use the new 2017 Circular E for payroll calculations beginning Jan. 1, 2017. The 2017 Circular E can be accessed at www.irs.gov/Forms-&-Pubs.
- The FICA wage base for 2017 increases to $127,200. For 2017, both the employee tax rate and the employer tax rate for Social Security remain unchanged at 6.2 percent each. The Medicare rate remains at 1.45 percent. (Reminder: Generally, FICA and Medicare withholdings never stop due to the age of the employee.)
- For the year 2017, the net federal unemployment rate is scheduled to remain at .6 percent for wages paid in 2017, and the taxable wage base remains at $7,000 per employee per year. The Tennessee unemployment wage base decreased to $8,000 per employee per year.
- The IRS has issued the new standard mileage rates which will be effective for costs incurred on or after Jan. 1, 2017. It will be reduced to 53.5 cents/mile for all miles of use for business purposes. For purposes of computing the charitable deduction for use of an auto, the rate will remain at 14.0 cents/mile. For use of an auto to obtain medical care or as part of a move, the 2017 rate will decrease to 17 cents/mile.
- The maximum 401(k) deferral remains unchanged at $18,000 for the year 2017, plus the $6,000 “catch-up” for those over 50 years of age. The 2017 maximum compensation limit for pension plans (401(k), Profit Sharing, and SEPs) will increase to $270,000, and the maximum contribution limit will increase to be $54,000. The wage criteria for defining a highly compensated employee will remain unchanged at $120,000 for the year 2016.
- Prior to the beginning of each calendar year, you must determine which of the two payroll tax deposit schedules you are required to use (monthly or semiweekly). If you are a monthly schedule depositor and accumulate a $100,000 tax liability on any day, you become a semiweekly depositor on the next day and remain so for at least the rest of the calendar year and for the following calendar year.
- NEW FOR 2016: Both paper and electronically filed 2016 Forms W-2 and W-3 must be filed with the Social Security Administration by Jan. 31, 2017. Both paper and electronically filed 2016 Form 1099-MISC (reporting non-employee compensation in Box 7) must be filed with the IRS by Jan. 31, 2017.
Social Security benefits for working retirees
For 2017, retirees over 62, but under full retirement age (FRA), can earn $16,920 (increased from 2016) before benefits are reduced. One dollar in benefits will be withheld for every $2 in earnings above the limit. In the year a person reaches FRA, a modified test applies for the months prior to attaining FRA. The earnings limit is $3,740 per month ($44,880 per year) for the year 2017. One dollar in benefits will be withheld for every $3 in earnings above the limit. For retirees who have reached FRA and older, there is no limit on earnings.
Reminders:
- Starting in 2013, employers must withhold an extra 0.9 percent in Medicare taxes on employee earnings over $200,000. An employer is required to begin withholding the additional Medicare Tax in the pay period in which it pays wages in excess of $200,000 to an employee.
- The value of personal use of company provided vehicles must be reported as income on the employee’s Form W-2 and must be included on the Company’s Form 941.
- S Corporations that pay health insurance premiums for two percent or more shareholders must include the premium payments on the shareholder’s Form W-2.
- The classification of workers as independent contractors vs. employees continues to require careful consideration. See the related article for more information. One can file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, and the IRS will determine whether a worker is an employee or not.
- Form 945 continues to be used for reporting all NON-WAGE federal income tax withholding; for example, back-up withholding and withholding from pension distributions. The same deposit rules, as for Form 941, apply to this form. Form 945 is filed annually and the 2016 filing deadline is Jan. 31, 2017.
- The household employee tax: A domestic employer (private home) for 2016 is required to file payroll tax forms, if the employer has paid as much as $2,000 in domestic wages to an employee for the calendar year. For 2017, this amount remains at $2,000. Domestic employers report these federal employee taxes on Form 1040, Schedule H. Related federal taxes will be paid with Form 1040. Continuing for 2016, the filing of a W-3 is necessary even if only one household employee W-2 is filed. Also important to note – the domestic wage threshold of $1,000 (aggregate for all employees) in a calendar quarter will trigger unemployment tax liabilities.
- The appropriate FIT withholding percentage for supplemental wage payments to an employee who does not receive $1 million of supplemental wages, such as bonuses, will be 25 percent for 2017. The rule is different for employees who receive more than $1 million of supplemental wages during a calendar year. Also continuing is the pension distribution withholding percentage of 20 percent if the distribution is eligible to be rolled over, and the backup withholding percent remains at 28 percent for 2017.
- When hiring a new employee you must verify that each new employee is legally eligible to work in the United States. This will include completing the Immigration and Naturalization Service Form I-9. Please use the most current form. (revised 11/14/16, expires 8/31/19) Tennessee also requires a New Hire Report be completed and submitted no later than 20 days from the date the employee is hired or rehired.
If we may assist you in any of these tax areas, please call us.