2020 PAYROLL UPDATE

FEDERAL CHANGES:

IRS Releases new W-4 Form for 2020

• 2020 W-4 form (English):  https://www.irs.gov/pub/irs-pdf/fw4.pdf 
• The IRS’ Understanding the 2020 Form W-4 and How to Use it to Calculate Withholding webinar is now posted to the IRS video portal. This hour-long webinar covers:

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

• Publication 15, The Circular E. It is now available on the IRS website: https://www.irs.gov/pub/irs-pdf/p15.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 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.

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:

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.