If you run a business, it’s crucial that you stay on top of changes to payroll tax laws. For 2020, several changes have already started, and others are being scheduled. 

Social Security and Medicare payroll taxes are collected together under the Federal Insurance Contributions Act (FICA). Social Security is financed by a 12.4 percent payroll tax on wages up to the taxable earnings cap. Half (6.2 percent ARE) paid by workers and the other half paid by employers. Self-employed workers pay the entire 12.4 percent.

From Jan 1, 2020, the maximum earnings that are subject to Social Security increases by $4,800, which raises the payroll tax on maximum earnings to $137,000 (up from $132,900). 

Because the tax on maximum earnings has increased by $4,800, employees whose income exceeded $132,900 in 2019 will take less take home pay if their income again exceeds that amount 2020. Because of this, employers should make some adjustments. 

  1. Alert your high-earning employees that more of their income of their income will be subject to tax. 

  2. Make sure your payroll systems are set up to account for the higher taxable wage base under the Social Security payroll tax.

  3. Some employees will have questions on their share of the increased tax. Be sure they understand how the lax laws work (6.2% is paid by the workers, the other half is paid by the employer). 

Expect more changes to payroll tax laws as we progress through 2020. Contact us today to learn how we can streamline your payroll system. 

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