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American Payroll Association                                            

2020 PAYROLL UPDATE

FEDERAL CHANGES:

IRS Releases new W-4 Form for 2020

o   Reasons for a new design of the W-4

o   Explanation of Steps 1-5 of the 2020 Form W-4

o   Explanation of who must use it

o   Illustration of how to complete two of the five worksheets from Publication 15-T

o   Recorded Q&A session from the live event

 

IRS Releases Publication 509 for 2020:  https://www.irs.gov/pub/irs-pdf/p509.pdf

 

2020 Federal holidays are as follows:

·         January 1- New Year’s Day

·         January 20- Birthday of Martin Luther King Jr

·         February 17- Birthday of George Washington (President’s Day): 

·         May 25- Memorial Day

·         July 3- Independence Day (Observed)

·         September 7- Labor Day

·         October 12- Columbus Day

·         November 11- Veterans Day

·         November 26- 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 2019 Form 940:  https://www.irs.gov/pub/irs-pdf/f940.pdf

 

IRS Releases 2020 Standard Mileage Rates

The IRS released Notice 2019-215 https://www.irs.gov/newsroom/irs-issues-standard-mileage-rates-for-2020 providing the 2020 standard mileage rates. Beginning January 1, 2020, the standard mileage rates for the use of a car (vans, pickups or panel trucks) will be:

  • 57.5 cents per mile for business miles driven, down from 58.0 cents for 2019
  • 17 cents per mile driven for medical or moving purposes, down from 20 cents for 2019 
  • 14 cents per mile driven in service of charitable organizations, unchanged from 2019

IRS Releases 2020 Pension Plan Limits:

§  Highlights of Changes for 2020

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 $19,000 to $19,500. The additional catch-up contribution limit for individuals aged 50 and over increased from $6,000 to $6,500 in 2020, the first increase since 2015.

The limit on annual contributions to an IRA remains unchanged from 2019 at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

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 2020.

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 2020:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000, up from $64,000 to $74,000.
     
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000, up from $103,000 to $123,000.
     
  • 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 $196,000 and $206,000, up from $193,000 and $203,000.
     
  • 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 $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. 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 $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.

 

Social Security (OASDI) Program Rates & Limits

2020

Tax Rates

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

 

Employers and Employees

6.20%

Medicare (Hospital Insurance)

Employers and Employees

1.45%

Additional Medicare

0.9%

(Applies to earned income of more than $200,000. Employers withhold this tax on wages in excess of $200,000 regardless of an employee’s filing status.)

 

Maximum Taxable Earnings

Social Security

$137,700

Medicare (Hospital Insurance)

No limit

Earnings Required for Work Credits

One Work Credit (One Quarter of Coverage)

$1,410

Maximum of Four Credits a Year

$5,640

Earnings Test Annual Exempt Amount

Under Full Retirement Age for Entire Year

$18,240

For Months Before Reaching Full Retirement Age in Given Year

$48,600

Beginning with Month Reaching Full Retirement Age

No limit

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

$3,011

Full Retirement Age

66

 

Social Security Wage Base Increases to $137,700 for 2020

 

On October 10, the Social Security Administration (SSA) announced that the 2020 social security wage base will be $137,700, an increase of $4,800 from $132,900 in 2019 [SSA, Press Release, 10-10-19].

The FICA tax rate remains 7.65% for 2020 up to the social security wage base (see the Social Security Fact Sheet: 2020 Social Security Changes). The maximum social security tax employees and employers will each pay in 2020 is $8,537.40, an increase of $297.60 from $8,239.80 in 2019.

2020 Income Tax Withholding Tables: https://www.irs.gov/pub/irs-pdf/p15t.pdf

Minimum Wage:

·         Federal Minimum Wage remains at $7.25 per hour

·         Federal Minimum Salary changed to $684 per week, or $35,568 annually

·         Federal Minimum Salary for employees exempt under the “highly compensated” employee exemption is $130,000.

STATE CHANGES:

Schedule for California Minimum Wage rate 2020-2023.

Date

Minimum Wage for Employers with 25 Employees or Less

Minimum Wage for Employers with 26 Employees or More

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

 

 

Minimum Salary: The exempt salary threshold increases for January 1, 2020 are as follows:
Employers with 26 or more employees: $1,040 weekly, $4,506.67 monthly, or $54,080 yearly
Employers with 25 or fewer employees: $960 weekly, $4,160 monthly, or $49,920 yearly

 

2020 Minimum Wage by State:

Alabama

$7.25 (Federal Minimum Wage, no state minimum)

Alaska

$10.19

Arizona

$12.00

Arkansas

$10.00

California

$13 (Employers with 26 or more employees, otherwise $12)

Colorado

$12.00

Connecticut

$11.00

Delaware

$9.25

Washington D.C.

$15.00 (July 2020)

Florida

$8.56

Georgia

$7.25 ($5.15 if not covered by federal regulations)

Hawaii

$10.10

Idaho

$7.25

Illinois

$9.25

Indiana

$7.25

Iowa

$7.25

Kansas

$7.25

Kentucky

$7.25

Louisiana

$7.25 (Federal Minimum Wage, no state minimum)

Maine

$12.00

Maryland

$11.00

Massachusetts

$12.75

Michigan

$9.65

Minnesota

$10.00  – large employers & $8.15 – small employers

Mississippi

$7.25 (Federal Minimum Wage, no state minimum)

Missouri

$9.45

Montana

$8.65

Nebraska

$9.00

Nevada

$9.00

New Hampshire

$7.25 (Federal Minimum Wage, no state minimum))

New Jersey

$11.00

New Mexico

$9.00

New York

$11.80

North Carolina

$7.25

North Dakota

$7.25

Ohio

$8.70

Oklahoma

$7.25

Oregon

$11.25

Pennsylvania

$7.25

Rhode Island

$10.50

South Carolina

$7.25 (Federal Minimum Wage, no state minimum)

South Dakota

$9.30

Tennessee

$7.25 (Federal Minimum Wage, no state minimum)

Texas

$7.25

Utah

$7.25

Vermont

$10.96

Virginia

$7.25

Washington

$13.50

West Virginia

$8.75

Wisconsin

$7.25

Wyoming

$7.25 ($5.15 if federal regulations do not apply)

U.S. Virgin Islands

$10.50

Puerto Rico

$7.25 Employers covered by the Federal Fair Labor Standards Act

Guam

$8.75 (March 2020)

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.

 


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