Ch-ch-ch-changes, turn and face the strange – David Bowie
Yep, there’s change afoot for employees and those that employ them! As for me, I’m happy with change as long as nothing is altered or different. Since that never (ever!) happens, maybe I can make it easier for you by summing up what’s new and what you need to do about it.
The Federal minimum wage – $7.25/hour – has remained unchanged since 2009. Some states have thus taken it upon themselves to raise the minimum wage for employees working in those states. 21 states have increased their minimum wage beginning January 1, 2020. Well, except New York – the new wage for them goes into effect on December 31, 2019 – I wonder if this is a reward for having the bad luck to work New Year’s Eve? The states whose wages have changed are: Alaska, Arizona, Arkansas, California, Colorado, Florida, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Jersey, New Mexico, New York, Ohio, South Dakota, Vermont, and Washington. Click here to download the chart for 2020 minimum wage for tipped and non-tipped employees in all 50 states. If you live in the other 29 states, the minimum wage is unchanged from 2019.
New W-4 Form
Let me tell you something, people were ticked off this last tax season because their refunds were much less (or nonexistent!) than they had been in the past. Because of the 2017 Tax Cuts and Jobs Act (TCJA), the withholding tables were changed to reflect the new tax rates set out. Apparently people must have complained loudly and often, because the IRS has redesigned the Employee Withholding Form W-4, to “make accurate withholding easier for employees.”
The new, “easier”, form is broken into five (yes FIVE) sections for employees to complete: personal information, accounting for multiple jobs, claiming dependents, other adjustments, and signature. OK, I’m being dramatic, it’s actually much simpler than Forms W-4 in the past, and much easier than it sounds! You can find the new form, with instructions, here. The most notable change is the removal of the calculation of withholding allowances – since personal exemptions were eliminated in TCJA, the withholding allowances are no longer relevant. If you are an employer, draft instructions are located here, Publication 15-T Federal Income Tax Withholding Methods.
What this means for you: employers are required to have all new employees complete the 2020 Form W-4 beginning January 1, 2020. Current employees are not required, but certainly can (and should) be encouraged to fill out a new form if they would like to adjust their withholding from 2019. Employers are permitted to ask for and copy employee Social Security cards to ensure that the information provided on Form W-4 is correct – Employers my be assessed penalties if name and SSN don’t match on the W-2, so be proactive!!
Have questions? The IRS has predicted that, and has a web page of FAQs, located here!
BUT WAIT! They’ve created an online Tax Withholding Estimator! This estimator is applicable to workers, retirees, and even self-employed individuals and is a simple tool to determine the correct amount of income tax they should have withheld from wages and/or pension and retirement payments, and will help entrepreneurs determine the proper amount for estimating (but always trust your tax professional also!!) NOTE: The current information provided from the estimator will be based on 2019 withholding tables. Users must come back in 2020 to obtain withholding information for the 2020 tax year. That’s from the site, but it’s still valuable to do now, as I don’t expect huge changes in the withholding tables from 2019.
IRS Limits for Social Security and Retirement Plan Contribution
As sure as New Year’s Day brings with it hangovers, regrets, guilt, and resolutions – the IRS wants to be part of the action and make changes for contribution limits!
The amount of employee’s wages that are subject to Social Security contribution of 6.2% will increase from $132,900 to $137,700 – any wages over $137,700 will not be subject to Social Security taxes. The maximum of Social Security to be paid by employees (and consequently the employer!) is capped at $8,537.40.
However, the Medicare limit is the sky – in other words, all wages will be subject to the 1.45% Medicare tax. AND just in case you think you’re clear, an additional .9% Medicare tax will be added to all wages over $200,000! Employees, this burden is all yours; employers pay only the 1.45%, regardless of wages.
Just like a fried egg, there’s always a sunny side! Retirement plan contributions have also increased, albeit a bit smaller increase. Most retirement contribution limits have increased $500 from 2019, but some (such as Traditional IRA) remain at $6,000. Medical savings account contribution limits have also increased by $50, but so has the High Deductible Health Plan Max Out-of-Pocket.
Confused? I don’t blame you! Click here to view a comprehensive summary of all these changes!