With every new year comes updated regulations and requirements concerning payroll taxes that employers should know. The year 2016 is no different as the Federal Government and IRS have made important changes to these responsibilities for both employers and their workers. Let’s take a closer look at some of the alterations crucial for companies to anticipate:
Employee withholding limits
The IRS recently released its figures for annual worker withholding for company reporting purposes. Although many of the limits experienced little to no change from 2015, businesses must be cognizant of the numbers for accurate payroll filing, according to the IRS. They are as follows:
- The limit for employees who participate in 401(k), 403(b), most 457 plans and the government’s Thrifty Savings Plan is $18,000.
- The catch-up contribution for employees over 50 years old who utilize these programs is $6,000.
- The annual contribution limit on individual retirement arrangements is $5,500.
- The limit for defined contribution plans is $53,000.
- The maximum out-of-pocket expense for self-only coverage is $4,450, while the amount is $8,150 for family coverage.
- The yearly deductible for self-only coverage in a health savings account increases to $3,350 from $3,300. For family coverage, the limit is $6,700, which was a $50 increase from 2015.
- The standard deductions for heads of households remains unchanged: $6,300 for singles and married couples filing separately and $12,600 for married couples filing jointly.
FICA remains the same
The Federal Income Contributions Act is made up of Social Security and Medicare limits that are subject to change on an annual basis. However, these amounts will remain the same in 2016, the IRS reported. Employers are required to withhold and pay the Social Security tax for employees as long as their yearly salary doesn’t exceed $118,500. That rate will hold at 12.4 percent for 2016 – 6.2 percent paid by both employer and employee – while the Medicare figure will also stay at 1.45 percent. As a result, the combined FICA tax is 7.65 percent of a worker’s income, with the maximum withholding coming out to $7,347. This contribution is the same as it was in 2015.
Additional Medicare tax
Employees who receive higher compensation are subject to an extra Medicare tax for the employee-paid portion of the FICA tax. This additional 0.9 percent figure is supplementary to salaries exceeding the following thresholds:
- $125,000 for married taxpayers who file separately.
- $200,000 for single and all other taxpayers.
- $250,000 for married taxpayers who file jointly.
FUTA/SUTA Wage Limits
The Federal Unemployment Tax Act, as well as the State Unemployment Tax Act, provides compensation for workers who have lost their jobs. FUTA requires that each state’s taxable wage base be the same as the federal limit, which is $7,000 per employee. However, many states exceed that required amount and base their figures on various factors.
It’s critical for companies to be aware of the different payroll tax laws that affect their employees. These rules and regulations are subject to change every year, so payroll teams need to remain updated on their employer obligations. Since these responsibilities can often depend on certain wage brackets or differ by states, businesses should inform their workers of how these alterations will impact them for accurate tax reporting and filing.