Whether or not you prepare your business’s payroll taxes, you’ll want to know what’s in store for next year. New changes affect payroll administration, employees, and employer. Here are at least six things you’ll need to know about 2015 payroll taxes.
1. High Paid Employees
The maximum taxable amount of earnings subject to Social Security withholding will jump to $118,000. You should notify these employees of the change affecting their take-home pay well before the January 1 start.
2. Withholding Rates Unchanged
Employer and employee will continue to pay 6.2 percent up to the new maximum towards the Social Security piece of FICA. That is a combined 12.4 percent on income up to the new maximum of $118,000. That is a maximum of $7,347 on the part of each the employer and employee.
3. Medicare contribution
Employer and employee will each continue to pay 1.45 percent for the Medicare portion of the FICA deductions, a combined 2.9 percent. All wages – salary and bonuses – are subject to Medicare withholding. There is no maximum limit.
4. Additional Medicare Tax
The Affordable Care Act pinches the high earners for a larger Medicare deduction. Those employees will pay an additional 0.9 percent as an Additional Medicare Tax on earnings above the statutory threshold:
- $125,000 for married employees who file separately
- $200,000 for single taxpayers
- $250,000 for married employees who file jointly
This Additional Medicare Tax applies to compensation paid that exceeds the threshold in a calendar year. But, these thresholds are not adjusted for inflation, so they will apply to more employees as the years go by.
While the Additional Medicare Tax will raise the contribution by well-paid employees, the employer’s portion will stay the same at 1.45 percent.
5. Net Investment Income
The Net Investment Income Tax (NIIT) is not strictly a payroll tax. Under the NIIT, earners reporting an adjusted gross income of $250,000 (Joint Filers) or $200,000 (Single Filers) will pay a 3.8 percent surcharge on Investment Income including Capital Gains.
The NIIT becomes a payroll issue when earners choose to adjust their income tax withholding to account for the increase to avoid tax underpayments and penalties.
6. Retirement issues
The IRS has posted complex rules on deductions and thresholds regarding deductions for IRA, 401(k), and other deferred income accounts. These include an increase in contributions for qualified savings plans, defined benefits plans, and other moves to encourage accountability for retirement income. Most of these changes affect payroll administration depending on employer sponsorship and employee enrollments. So, even where there is not a direct cost to employer in terms of a mandated payment, there is a cost in the administration.
The changes and process adjustments in payroll for 2015 can be a costly headache. If you continue to run your own payroll, you must seek professional advice before the start of the year. If you run pay through a local payroll administrator, you need to confirm the administrator’s awareness and ability to handle the new orders. If you administer payroll through an HRIS provider, you should seek assurance that they will deliver the new necessities. And, if you work through a Professional Employer Organization (PEO), you should check on their readiness to approach 2015.
In addition to these six adjustments, the Affordable Care Act will require auditing that correlates income and medical benefit plans. However, these six modifications are probably enough to make you want to move your payroll accountability to a qualified and trusted payroll provider.