Payroll taxes are changing, but how? Right now, the best answer we have is that we don’t really know. We have tax law but not regulations. The regulations give us instruction on how to apply the laws. There are some things we do know about the changes to payroll taxes. Look at a few of them below:
Social Security
Social Security is still 6.2% of gross pay. However, the new wage base increases to $128,400. This means that the most Social Security tax your employees will pay in 2018 would be $7,960.80.
Medicare
Medicare is 1.45% of an employee’s gross pay and has no cap. Earnings greater than $200,000 will be taxed at 1.54%. The employee, not the employer, will pay the additional 0.9%.
Federal Unemployment Rate
The wage base for Federal Unemployment remains at $7,000 and the effective tax rate will be 0.6%.
Federal Income Tax
This is where payroll taxes may get tricky. W-4s submitted by your employees determine the Federal Income Tax. This form shows their filing status and their chosen number of exemptions. Because we know that the tax brackets are changing, the W-4 will need to be updated. In an announcement on December 13, 2017, the IRS stated that, “We anticipate issuing the initial withholding guidance (Notice 1036) in January reflecting the new legislation, which would allow taxpayers to begin seeing the benefits of the change as early as February.” Until then, we will be using the 2017 tax brackets and W-4 and make any adjustments once the new information is available.
Supplemental Wages
Traditionally, since 2007, bonuses, commissions, and other supplemental wages have been taxed at 25%. With the new tax law, however, the tax rate may increase to 28%.
What Now?
We wait and we continue doing what we have always done until the IRS gives us a new W-4 and releases the notice. We also suggest that employees keep an eye on their withholding. Later in 2018 employees should look at their earnings, compare their withholding to the new tax tables, and make any adjustments necessary.
Does all of this still worry you? Do you find payroll taxes way too confusing already? Give us a call and we would be happy to take those worries off of your hands!
