The new year has arrived, and along with it, comes to some new payroll tax developments. There have been major changes made to Form W-4, the federal withholding computations and overtime rules, as well as unemployment tax and minimum wages in some states. In this article we explain the five most important highlights:
1. Significant revisions have been made to Form W-4.
The IRS redesigned Form W-4, beginning with the 2020 tax year. The form was revised to take into account changes from the Tax Cuts and Jobs Act. That law suspended personal exemptions and substantially increased the standard deduction. The mismatch between the old Form W-4 and the new tax law caused some taxpayers to be over-or under-withheld. For answers from the IRS to frequently asked questions about the new form, click here.
2. Withholding was revised.
Federal withholding tax computations were also revised to take into account the above changes. For more information, see IRS Publication 15-T.
In addition, some states issued guidance on how to compute withholding in light of the federal changes.
3. New overtime rules were issued.
The Department of Labor finalized overtime rules that went into effect on January 1, 2020. The standard salary level test threshold for a bona fide executive, administrative, or professional (EAP) employee, who is exempt from receiving overtime, has increased from $455 per week to $684 per week ($35,568 annually). The salary threshold for a highly compensated employee (HCE) to be exempt from receiving overtime has increased from $100,000 to $107,432. The employee must be paid at least $684 per week on a salary or fee basis and perform certain duties.
Employers can now use non-discretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10% of the standard salary level.
Computer professionals must earn at least $684 per week ($35,568 per year) or at least $27.63 per hour to be exempt from receiving overtime. Ten percent of the salary level ($68 per week) may be satisfied with non-discretionary bonuses or incentive payments.
There's also new guidance on which fringe benefits can be excluded from the regular rate of pay computation. For more information, see our article: "New DOL 'Rate of Pay' Regs Update Overtime Pay Rules."
4. Unemployment tax may have changed in your state.
States that have increased the amount of taxable wages subject to unemployment tax (the taxable wage base) in 2020 include: Alaska, Colorado, Hawaii, Idaho, Iowa, Kentucky, Minnesota, Montana, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, Utah, Vermont Washington, and Wyoming.
In addition, Arkansas, Illinois, Missouri, and Ohio have lowered their taxable wage base.
5. The minimum wage rate has changed in many states.
The following states increased their minimum wage rates on January 1: 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.
Some localities have also increased their minimum wage rates.
If you have questions about payroll, need assistance, o want to know if these new changes affect your company, contact us to speak with one of our payroll advisors.
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