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).
Published at Sat, 14 Dec 2019 18:40:08 +0000