Payroll penalties are severe, my friends. And these penalties impact employers who accidentally make mistakes. That’s why it’s important to know about changes to payroll laws and tax rates beforehand.
Here are seven upcoming 2020 payroll changes you should familiarize yourself with before the year comes to a close—and going into the new year.
1. New DOL overtime rule
The DOL new overtime rule is probably the biggest payroll change going into 2020. The change in salary threshold has been in the works for quite some time, with a 2016 overtime rule failing in the last hour.
What is the updated overtime law, and how does it affect your small business? The new law goes into effect January 1, 2020, and will make 1.3 million more Americans eligible for overtime pay. Starting in 2020, the new salary threshold for classifying a worker as exempt from overtime will increase from $23,660 to $35,568 per year.
If you have exempt employees in your business, you’ll need to take a look at them and determine if they are now nonexempt due to the new ruling. And if they are newly nonexempt, you’ll need to classify them as such and start paying them overtime.
2. Social Security wage base
Another payroll change is one that is subject to change annually, and that’s the Social Security wage base.
An employee’s income is subject to Social Security taxes up to a limit. The Social Security wage base determines when you stop withholding and contributing Social Security taxes for an employee.
In 2019, the wage base was $132,900. But in 2020, that wage base increases to $137,700.
If you have some high-earning employees, you’ll withhold and contribute Social Security taxes until they earn $137,700. Then you’ll stop. That means the maximum amount you’ll withhold for Social Security tax is $8,537.40 per employee. And, the maximum amount you’ll contribute is $8,537.40 per employee.
It’s a little more than the 2019 maximum contribution amount of $8,239.80, but it won’t affect you if your employees earn below the 2019 wage base.
3. Federal income tax withholding tables
To withhold federal income taxes from an employee’s wages, you need to collect Form W-4 and use the income tax withholding tables in IRS Publication 15.
And by now, we all know that tax rates, including federal income tax withholding parameters, tend to change from year to year. Plus, with the new Form W-4 redesigned for 2020, there might be some other changes you need to be on the lookout for.
Unlike past versions of Form W-4, the new form does not ask employees for withholding allowances. The 2020 form is divided into five steps. Here’s a sneak peak of the how the new form layout looks:
- Step 1: Enter Personal Information
- Step 2: Multiple Jobs or Spouse Works
- Step 3: Claim Dependents
- Step 4 (optional): Other Adjustments
- Step 5: Sign Here
4. Changes to benefits
Non-tax deductions, like benefits, are an important part of payroll. And some benefits, like retirement plans, flexible spending accounts (FSAs), and health savings accounts (HSAs) have limits that are subject to change annually. For example, HSA limits are increasing from $3,500 to $3,550 (individual coverage) and $7,000 to $7,100 (family coverage).
In addition to contribution limit changes, there are a few new benefits that the Departments of Labor, Health and Human Services, and Treasury are rolling out: Individual Coverage HRAs (ICHRAs) and Excepted Benefit HRAs. Both brand-new HRA benefits are available to business owners of any size, provided you meet a few requirements.
The ICHRA lets employers reimburse employees for the cost of their health insurance coverage. If you set up an ICHRA, you do not need to offer employees a traditional group health insurance plan. In fact, you can’t. If you offer an employee a traditional plan, you can’t also offer them an ICHRA.
Excepted benefit HRAs are a little different. You can offer these HRAs in conjunction with traditional health insurance plans. An Excepted Benefit HRA covers things not included in a traditional group health plan, like dental coverage.
Other Articles From AllBusiness.com:
- The Complete 35-Step Guide for Entrepreneurs Starting a Business
- 25 Frequently Asked Questions on Starting a Business
- 50 Questions Angel Investors Will Ask Entrepreneurs
- 17 Key Lessons for Entrepreneurs Starting A Business
5. State- and local-level changes
Federal payroll changes aren’t the only things you need to keep an eye on. You must also know about state and local-level changes that will impact payroll.
I’m not going to name off every potential payroll change by state and locality. A number of them depend on special circumstances. So, what are some things that could change?
- Minimum wage
- SUTA tax rates
- State-specific taxes (e.g., Oregon transit tax)
- State-specific laws (e.g., California AB 5)
- Paid sick leave laws (e.g., Washington employees can start taking paid sick leave starting January 1, 2020)
- Paid family leave laws
Before the end of the year, check with your state to determine if there are any upcoming payroll changes that will affect your small business.
6. Bank holidays
You know the days that some bank holidays land on change every year, but knowing about them ahead of time can help you plan payroll.
What happens if payday falls on a bank holiday? If payday lands on a day that the banks are closed, your employees cannot cash their checks or receive their direct deposit. They’ll have to wait until the next business day after the holiday to get their wages. Or, you can pay them earlier.
Regardless of how you decide to handle payroll when a bank holiday throws it off, you need to have a schedule and notify employees when pay dates are shaken up.
Here are the 2020 bank holidays that could impact your payroll:
- New Year’s Day: January 1 (Wednesday)
- Martin Luther King Jr. Day: January 20 (Monday)
- Presidents Day: February 17 (Monday)
- Memorial Day: May 25 (Monday)
- Independence Day: July 4 (Saturday—banks are open on Friday)
- Labor Day: September 7 (Monday)
- Columbus Day: October 12 (Monday)
- Veterans Day: November 11 (Wednesday)
- Thanksgiving Day: November 26 (Thursday)
- Christmas Day: December 25 (Friday)
7. Tax deposit schedule
How often you deposit taxes can also change from year to year, depending on your tax liability during a lookback period.
Employers either deposit Social Security, Medicare, and federal income taxes monthly or semiweekly. Again, this frequency is determined by your tax liability during the IRS four-quarter lookback period (for Form 941 filers).
Employers who reported a tax liability of $50,000 or less during the lookback period are monthly depositors. Employers who reported a tax liability of more than $50,000 during the period are semiweekly depositors.
So for example, just because you were a monthly depositor in 2019 doesn’t mean you’ll be a monthly depositor again in 2020. You’ll have to use the lookback period (that stretches from 2018-2019) to figure it out.
To determine your 2020 deposit schedule, look at the tax liability you reported on Form 941 from July 1, 2018-June 30, 2019. Is it $50,000 or lower? You’re a monthly depositor. Is it over $50,000? You’re a semiweekly depositor.
You can read more about lookback periods in IRS Publication 15.
RELATED: How an Accountant Can Save Your Business Money at Tax Time—And All Year Long
The post 7 Big Changes That Could Impact the Way You Do Payroll This Year appeared first on AllBusiness.com
The post 7 Big Changes That Could Impact the Way You Do Payroll This Year appeared first on AllBusiness.com. Click for more information about Mike Kappel.
from neb biz feed 1 https://ift.tt/38EbOQW
via Nebula Biz Local Loans
No comments:
Post a Comment