2014 Payroll Tax Changes
What’s in Store for 2014?
There are a number of 2014 payroll tax changes that employers must implement to accurately process payroll. This article outlines a list of scheduled payroll tax changes that will affect employers beginning next year.
Affordable Care Act Changes
- Small business tax credits are set to increase. Small businesses with no more than 25 employees and no more than $50,000 of average annual wages can take advantage of up to a 50% tax credit when the employer contributes at least 50% of the employee-only premium cost.
- Minimum value determination. Whether eligible employer-sponsored plans provide minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment.
- Transitional relief for informational reporting. This will allow employers time to adapt their health coverage and reporting systems. Employers are encouraged to voluntarily comply with reporting 2014 information once the Employer Shared Responsibility Provisions are in full effect in 2015.
- Market reforms apply to certain types of group plans. Notice 2013-54 explains how the Affordable Care Act’s market reforms apply to certain types of group plans, including health reimbursement arrangements (HRA’s), health flexible spending arrangements (health FSA’s), and certain other employer healthcare arrangements. The notice applies for plan years beginning on and after January 1, 2014.
Employee Withholding Changes
- The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $17,500.
- The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $5,500.
- The limit for defined-contribution plans is $52,000, up from $51,000.
- The general definition of a highly compensated employee is unchanged at $115,000.
- The definition of a key employee in a top-heavy plan increases to $170,000, up from $165,000.
- The limited compensation amount increases to $210,000 from $205,000.
- The general annual qualified plan compensation limit rises to $260,000 from $255,000.
- The foreign-earned income exclusion amount is $99,200, up form $97,600.
- The annual dollar limit on employee contributions to employer-sponsored health-care flexible spending arrangements remains unchanged at $2,500.
FICA Rate and Wage Bases
- The Social Security wage base for 2014 will increase to $117,000 from $113,700.
- The FICA contribution rate is scheduled to remain at 6.2% for 2014.
- For the Medicare (HI) portion of the FICA taxes, there is no wage base and all wages earned are subject to the HI tax, which is also paid by employers and employees. Each pays at a 1.45% rate, although employees pay an additional 0.9% on wages greater than $200,000.
- A 1.5% cost-of-living increase amount is to take effect, affecting several thresholds for benefits and coverage. The Social Security tax annual coverage threshold amount for domestic employees increases to $1,900 and remains $1,600 for election workers.
FUTA Credit Reductions
Thirteen states and the U.S. Virgin Islands have Federal Unemployment Tax Act credit reductions for 2013.
- Delware has a 0.6% credit reduction that requires employers to pay up to $42 in additional FUTA costs for each employee for 2013.
- Arkansas, California, Connecticut, Georgia, Kentucky, Missouri, New York, North Carolina, Ohio, Rhode Island, and Wisconsin have a credit reduction of 0.9%, increasing FUTA costs by up to $63 per employee.
- Indiana has a credit reduction of 1.2% that increases FUTA costs by up to $84 per employee. The state prevented the benefit cost rate add-on of an additional $14 per employee with a fifth-year waiver application that the Labor Department approved.
- The U.S. Virgin Islands has a credit reduction of 0.9% plus an extra credit reduction of 0.3% for 2014. This extra credit reduction can apply for jurisdictions that do not achieve solvency goals established by the Labor Department.
- Arizona, Florida, Nevada, New Jersey, and Vermont do not have credit reductions for 2013 and repaid their loan balances for 2012.
- South Carolina’s credit reduction avoidance application was approved by the Labor Department, so they will not have a 2013 credit reduction despite having a federal unemployment loan balance.
SUTA Wage Bases
Across the U.S. a large number of states are continuing to deal with solvency issues in their unemployment insurance trust fund. At this time, 13 state jurisdictions have decided to change the taxable wage base limits for 2014. States are able to set limits on the wage base that are taxable for unemployment insurance purposes as long as the limit is not less than the federal standard of $7,000.
SUTA wage base changes scheduled for 2014:
Colorado 11,300 to 11,700 Delaware 10,500 to 18,500 Illinois 12,900 to 12,960 Iowa 26,000 to 26,800 Kentucky 9,300 to 9,600 Montana 27,900 to 29,000 Nevada 26,900 to 27,400 New Jersey 30,900 to 31,500 New York 8,500 to 10,300 Oklahoma 20,100 to 18,700 Oregon 34,100 to 35,000 Pennsylvania 8,500 to 8,750 Rhode Island 20,200 to 20,600** South Dakota 13,000 to 14,000 Washington 39,800 to 41,300
**For employers that pay at the highest UI tax rate of 9.79%, the wage base is $22,100.
At the time of this publication release, some states have not yet reported what their 2014 wage base will be. Please refer to the 2014 SUTA Wage Base Changes article on the APS Blog for updates as additional states report their amounts.
IRS Small Business Health Care Tax Credit for Small Business Owners
IRS Notice 2012-31 Minimum Value of an Employer Sponsored Plan
IRS Notice 2013-45 Transitional Relief for 2014 Information Reporting
IRS Notice 2013-54 Application of Market Reform and other Provisions of the Affordable Care Act to HRAs, Health FSAs, and Certain other Employer Healthcare Arrangements
Bloomberg BNA Payroll Updates for 2014 Pension Plan Amounts
Bloomberg BNA Payroll Updates for FUTA Credit Reductions
Bloomberg BNA Payroll Updates for Social Security Wage Base
American Payroll Association SUTA Wage Base Table