Photo courtesy of Nick TranSan Diego Chapter
American Payroll Association                                            25 Years

 

2018 PAYROLL UPDATES

 

FEDERAL CHANGES:

IRS Releases Publication 509 for 2018:  https://www.irs.gov/pub/irs-pdf/p509.pdf

The legal holidays for 2018 are as follows:

 

January 1—New Year's Day

January 15—Birthday of Martin Luther King, Jr.

February 19—Washington's Birthday

April 16—District of Columbia Emancipation Day

May 28—Memorial Day

July 4—Independence Day

September 3—Labor Day

October 8—Columbus Day

November 12—Veterans Day (observed)

November 22—Thanksgiving Day

December 25—Christmas Day

Remember that a statewide legal holiday does not delay a due date for making a federal tax deposit. 

IRS Releases 2017 Form 940: The IRS has released the 2017 Form 940: https://www.irs.gov/pub/irs-pdf/f940.pdf

    Mileage Rates:
    Beginning on Jan. 1, 2018, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

    ·         54.5 cents per mile for business miles driven, up 1 cent from 2017

    ·         18 cents per mile driven for medical or moving purposes, up 1 cent from 2017

    ·         14 cents per mile driven in service of charitable organizations, no change from 2017

    The business mileage rate and the medical and moving expense rates each increased 1 cent per mile from the rates for 2017. The charitable rate is set by statute and remains unchanged.

    Pension Plan Limits:

    The IRS has announced the 2018 pension plan limits. They are as follows:

    Highlights of Changes for 2018

    The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500.

    The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2018.

    Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2018:

    • For single taxpayers covered by a workplace retirement plan, the phase-out range is $63,000 to $73,000, up from $62,000 to $72,000.
    • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $101,000 to $121,000, up from $99,000 to $119,000.
    • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $189,000 and $199,000, up from $186,000 and $196,000.
    • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

    The income phase-out range for taxpayers making contributions to a Roth IRA is $120,000 to $135,000 for singles and heads of household, up from $118,000 to $133,000. For married couples filing jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

    The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $63,000 for married couples filing jointly, up from $62,000; $47,250 for heads of household, up from $46,500; and $31,500 for singles and married individuals filing separately, up from $31,000.

    • Personal exemption:
    • ·         The personal exemption remains at $4,150.
    • ·         The standard deduction for single taxpayers and married taxpayers filing separately rises by $150 to $6,500.
    • ·         The standard deduction for married taxpayers filing joint returns rises by $300 to $13,000.
    • ·         The standard deduction for heads of household rises by $200 to $9,550.

    Social Security Wage Base:

    Social Security (OASDI) Program Rates & Limits

    2018

    Tax Rates (percent)

     

    Social Security (Old-Age, Survivors, and Disability Insurance)

     

    Employers and Employees, each 

    6.20

    Medicare (Hospital Insurance)

     

    Employers and Employees, each 

    1.45

    Maximum Taxable Earnings (dollars)

     

    Social Security

    128,700

    Medicare (Hospital Insurance)

    No limit

    Earnings Required for Work Credits (dollars)

     

    One Work Credit (One Quarter of Coverage)

    1,320

    Maximum of Four Credits a Year

    5,280

    Earnings Test Annual Exempt Amount (dollars)

     

    Under Full Retirement Age for Entire Year

    17,040

    For Months Before Reaching Full Retirement Age in Given Year

    45,360

    Beginning with Month Reaching Full Retirement Age

    No limit

    Maximum Monthly Social Security Benefit for Workers Retiring at Full Retirement Age (dollars)

    2,788

    Full Retirement Age

    66

    Cost-of-Living Adjustment (percent)

    2.0

    Social Security Wage Base Increases to $128,700 for 2018

    The Social Security Administration (SSA) announced on Friday, October 13, 2017, that the 2018 social security wage base will be $128,700, which is an increase of $1,500 from $127,200 in 2017 (view the SSA Fact Sheet). As in prior years, there is no limit to the wages subject to the Medicare tax; therefore all covered wages are still subject to the 1.45% tax. As in 2017, wages paid in excess of $200,000 in 2018 will be subject to an extra 0.9% Medicare tax that will be withheld only from employees’ wages. Employers will not pay the extra tax.

    The FICA tax rate, which is the combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%, will be 7.65% for 2018 up to the social security wage base. The maximum social security tax employees and employers will each pay in 2018 is $7,979.40, an increase of $93.00 from $7,886.40 in 2017.

    The social security wage base for self-employed individuals in 2018 will also be $128,700. There is no limit on covered self-employment income that will be subject to the Medicare tax. The self-employment tax rate will be 15.3% (combined social security tax rate of 12.4% and Medicare tax rate of 2.9%) up to the social security wage base. In 2018, the maximum social security tax for a self-employed individual will be $15,958.80.

    FICA coverage threshold for domestic, election workers

    The threshold for coverage under social security and Medicare for domestic employees (i.e., the “Nanny tax”) will be $2,100 in 2018, up from $2,000 in 2017; the coverage threshold for election workers will be $1,800 in 2018, unchanged from 2017.

    2018 Income Tax Withholding Tables:

    https://www.irs.gov/pub/irs-pdf/n1036.pdf

    Minimum Salary:

    Minimum Salary: $913 per week, or $47,476 annually. This is slightly less than the $970 per week ($50,440 annually) originally proposed, but still more than double the current $455 per week.

    Bonuses and Commissions May Now Be Included: In a somewhat surprising concession to employers, the new rules will allow non-discretionary bonuses, incentive payments and commissions to count for up to 10% of the minimum salary, provided these amounts are paid at least quarterly.

    Highly Compensated Employees: The minimum salary for employees exempt under the “highly compensated” employee exemption will increase to $134,004 from $100,000.

    Automatic Updates: The new minimum salary levels will not update automatically every year as originally proposed, but they will be adjusted every three years beginning January 1, 2020. The salary level will be pegged to the 40th percentile of full-time salaried workers in the lowest-wage Census region. For 2020, the DOL estimates that the minimum will go up to $51,168. The minimum for highly compensated employees will be tied to the 90th percentile of full-time salaried workers in the lowest-wage Census region, which the DOL estimates will be $147,524 in 2020.

    Duties Tests: The new rule contains no changes to the existing duties tests.

    Minimum Wage: (Federal Minimum Wage remains at $7.25 per hour)

    Schedule for California Minimum Wage rate 2018-2023.

    Date

    Minimum Wage for Employers with 25 Employees or Less

    Minimum Wage for Employers with 26 Employees or More

    January 1, 2019

    $11.00/hour

    $12.00/hour

    January 1, 2020

    $12.00/hour

    $13.00/hour

    January 1, 2021

    $13.00/hour

    $14.00/hour

    January 1, 2022

    $14.00/hour

    $15.00/hour

    January 1, 2023

    $15.00/hour

     

    STATE CHANGES:

    • Alabama: $7.25 (Federal Minimum Wage, no state minimum)
    • Alaska: $9.84 (Annual indexing has begun)
    • Arizona: $10.50 (Raised to $12.00 through Indexed Annual Increases between 1/1/2019 to 1/1/2020)
    • Arkansas: $8.50
    • California: $11.00 ($11.00 to $15.00 in $1.00 Indexed Annual Increases between 1/1/2019 to 1/1/2022)
    • Colorado: $10.20* ($10.20 to $12.00 in $0.90 Indexed Annual Increases between 1/1/2019 and 1/1/2020)
    • Connecticut: $10.10
    • Delaware: $8.25
    • District of Columbia: $12.50 (Increases to $15 with Indexed Annual Increases between 7/1/2018 and 7/1/2020)
    • Florida: $8.25
    • Georgia: $5.15 if not covered by Federal Regulations otherwise $7.25 (Federal Minimum Wage)
    • Guam: $8.25
    • Hawaii: $10.10 
    • Idaho: $7.25
    • Illinois: $8.25 
    • Indiana: $7.25
    • Iowa: $7.25 
    • Kansas: $7.25
    • Kentucky: $7.25
    • Louisiana: $7.25 (Federal Minimum Wage, no state minimum)
    • Maine: $10.00  (11.00 to $12.00 in $1.00 annual Increases between 1/1/2019 to 1/1/2020) (Indexed annual increases will begin on 1/1/2021)
    • Maryland$10.10 
    • Massachusetts$11.00  ($3.75 for tipped employees)
    • Michigan$9.25 (Indexed annual increases will begin on 4/1/2019)
    • Minnesota Large employers are required to pay workers $9.65/hour and small employers (less than 500k in annual sales) $7.87 (Indexed Annual increases will begin on 1/1/2018)
    • Mississippi: $7.25 (Federal Minimum Wage, no state minimum)
    • Missouri: $7.85
    • Montana: $8.30 ($4.00 for businesses with gross annual sales of $110,000 or less) (Annual indexing has begun)
    • Nebraska$9.00 
    • Nevada: $8.25 Nevada’s minimum wage is set at $1.00 above the federal minimum wage for firms not providing health insurance.
    • New Hampshire: $7.25 (Federal Minimum Wage)
    • New Jersey: $8.60 (Annual indexing has begun)
    • New Mexico: $7.50
    • New York: $10.40 ($0.70 Indexed Annual Increases from 12/31/2018 to $12.50 by 12/31/2020. Starting 1/1/2021, the rate will be adjusted annually for inflation until it reaches $15 an hour)
    • North Carolina: $7.25 
    • North Dakota: $7.25
    • Ohio: $8.30 ($7:25 for employers with gross sales of $283,000 or less) (Annual indexing has begun)
    • Oklahoma: $7.25
    • Oregon: $10.75  (From $10.75 to $13.50 from 7/1/2019 to 7/1/2022)
    • Pennsylvania: $7.25
    • Puerto Rico: $7.25
    • Rhode Island: $10.10 
    • South Carolina: $7.25 (Federal Minimum Wage, no state minimum)
    • South Dakota: $8.65  (Annual indexing has begun)
    • Tennessee: $7.25 (Federal Minimum Wage, no state minimum)
    • Texas: $7.25
    • Utah: $7.25
    • Vermont: $10.50, Annual indexing begins 1/1/2019
    • Virgin Islands$9.50, $10.50, 6/1/18
    • Virginia: $7.25
    • ·         Washington: $11.50 (From $12.50 to $13.50 from 1/1/2019-1/1/2020)
    • ·         West Virginia$8.75
    • Wisconsin: $7.25
    • Wyoming: $7.25, $5.15 if federal regulations do not apply

    Specific California Updates:

    On March 12, 2018, the California Supreme Court made a ruling, which could potentially affect the way you compensate your employees when applying bonuses.

    In Alvarado v. Dart Container Corp., the court decided that total regular hours worked (non-overtime)—instead of total hours worked—should be used when:

    ·  Calculating an employee’s overtime rate for flat sum (non-discretionary) bonuses, and

    ·  The bonus is included in the regular rate of pay calculation.

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