With a new year come a lot of new changes and updates to payroll requirements. 2021 is quickly approaching, so - as in past years - we compiled the following list of items that may initiate some payroll changes in your organization. You might start thinking about these now and take action sooner than later.
FICA Tax Rate Increase
The maximum amount of earnings subject to the Social Security payroll tax beginning January 1, 2021 will increase from the current $137,700 to $142,800. The 7.65% employee tax rate remains unchanged and is the combined rate for Social Security (6.2%) and Medicare (1.45%). These rates do not include the additional 0.9% individuals with earned income of $200,000 and more ($250,000 and more for married couples filing jointly) pay.
The CARES Act, implemented in March of 2020, enabled employers to defer deposit and payment of the employer’s share of the Social Security FICA taxes from March 27 through December 31, 2020. The deferred payments are required to be paid with half due by December 31, 2021 and the other half by December 31, 2022.
In August 2020, the IRS issued Notice 2020-65 allowing employers to suspend withholding and paying the employees’ Social Security payroll taxes from September 1st through December 31, 2020 for those employees with wages less than $4,000 bi-weekly. Companies that suspended the withholding of employees’ payroll tax are required to collect additional amounts from workers' paychecks from January 1 through April 30, 2021 to repay the tax obligation.
State Unemployment Tax Act (SUTA)
Despite facing the highest unemployment rate in Oregon history this year, the current Oregon SUTA base (currently $42,100) will receive only a modest shift in tax schedule. Employers subject to the Oregon payroll tax will move to a Tax Schedule IV for 2021 with a base of $43,800. The Washington State base for 2020 is currently $52,700. This will be increased beginning in 2021 to $56,500. The base rate is the maximum amount of wages per employee for which unemployment tax is applicable each year and is the same for all employees within a state, while the unemployment rate is specific to each individual company.
Federal Unemployment Tax Act (FUTA)
The current FUTA rate is 6.0% of the first $7,000 of employee wages. Employers generally get a credit of up to 5.4% (state tax credit) if unemployment taxes are paid in full and on time. The FUTA rate after the credit is 0.6%.
Oregon Local Taxes
In calendar year 2021, the Lane Transit District tax will be increasing from the current .0075 to .0076. The Wilsonville transit tax will remain unchanged at .005. The TriMet transit tax rate for 2021 is .007837, an increase from the current .007737.
The Eugene Community Safety Payroll Tax Ordinance (No.20616) goes into effect January 1, 2021. The employer payroll tax is calculated at a rate of 0.0021 of total wages. For employers with two or less employees, the rate is 0.0015 for the first $100,000 of wages paid. The employee portion of the tax is based on earnings. An employee below $12.00 per hour is exempt, those making between $12.01 and $15.00 are at a rate of 0.0030, and those making more than $15.00 are 0.0044 of total wages. It is important to note that the Eugene minimum wage increased to $12.00 per hour in July 2020. Employers who are paying wages to employees with a physical address in Eugene must register and file with the City of Eugene.
On May 19, 2020, voters in the Metro district (Multnomah, Clackamas, and Washington counties) passed Ballot Measure 26-210 which begins January 1, 2021. The income tax is will be paid at a rate of 1% from people who make $125,000 annually (or $200,000 for couples). The tax applies to resident income and to nonresident income earned from businesses within the metro area. Businesses will also pay a 1% tax on profits with annual gross receipts of more than $5 million.
Measure 26-214, “preschool for all”, was approved by Multnomah County voters on November 3, 2020 and is effective January 1, 2021. This is a new tax on county residents and taxable income received within the County. The preschool measure is a 1.5% tax on incomes of more than $125,000 for single filers per year (joint filings $250,000), and 3% for $250,000 (joint filings $400,000). Additional guidance is forthcoming.
Washington Paid Family and Medical Leave
Paid Family and Medical Leave is an insurance program funded through premiums paid by employers and employees which began January 1, 2019. Effective January 1, 2021, the total premium amount will remain unchanged at 0.4%, shared by the employer (37%) and the employee (63%) for employers with over 50 employees. An employer can choose to pay the employee portion of the premium. Employers with fewer than 50 employees are not required to pay the employer portion of the premium but are still required to collect and remit the employee portion. For additional information you can visit the Washington Paid Family & Medical Leave website.
Oregon Workers’ Benefit Fund
There is no change in 2021 for the 2.2 cents per hour worked for the Oregon Workers’ Benefit Fund. Employers must continue to pay at least half of the amount (1.1 cents) and deduct no more than 1.1 cents from employees' wages. Payments must continue to be made directly to the state with other state payroll taxes. Additional detailed information can be found on the Oregon.gov webpage.
401(k) Limit Increase
The contribution limit for employees who participate in 401(k) and 403(b) plans will remain at $19,500 in 2021. Employees age 50 and over will continue to have the 'catch-up' contribution limit of $6,500. The maximum contributions from all sources (employer and employee combined) will rise by $1,000 in 2021 to $58,000 for all employees age 49 and younger, and $64,500 if age 50 or older.
Flexible Spending Account (FSA) / Parking and Transit Limits
Employee pre-tax deductions for FSA health reimbursement accounts will remain unchanged in 2021 plan years at $2,750. For health FSA plans that contain the carryover feature, the maximum carryover amount for 2021 is increasing $50 from 2020 to $550. Parking and transit limits for 2021 also remain the same as 2020 at $270 per month. The dependent care reimbursement remains unchanged at $5,000 ($2,500 if married and filing separate taxes). Remember that employees can only change elections during open enrollment and must have a qualifying event to make any changes during the rest of the plan year.
Health Savings Account (HSA) Contributions
For 2021, the IRS increased pre-tax deductions for HSAs to $3,600 for individual coverage ($50 increase) and $7,200 for family coverage ($100 increase). This is for members that have high deductible medical coverage that qualifies to be paired with a Health Savings Accounts.
Workers’ Compensation pure premium rates are the base rates before insurer costs are added. The pure premiums rates for 2021 are expected once again to decrease by 5.6% from 2020. The pure premium is the portion employers pay to cover claims and to maintain workplace safety programs. The pure premiums are combined with an assessment rate which is expected to increase from 8.4% to 9.0% of premiums paid. The increase is needed to help stabilize workplace safety and related programs.
OregonSaves was rolled out in October 2017 and is a mandatory state retirement savings program. The program is applicable to employers of all sizes. The deadline for the final phase of the program is January 15, 2021 and is for employers with 4 or fewer employees. The deadlines for all other size employers has passed. Employers that do not offer an employer-sponsored retirement plan are required to facilitate OregonSaves. Last year Governor Kate Brown signed SB 164 into law. This law states that employers not complying with OregonSaves will be subject to penalties of up to $100 per eligible employee up to $5,000 per year. Employees make contributions to personal IRAs through payroll deductions starting at 5% of gross pay and increases 1% each year of participation (employees can choose additional amounts). Employers that offer an employer-sponsored plan must certify they do, and this certification can be done online in just minutes.
In October the IRS announced (IRS Notice 2020-76) it would once again extend the deadline from January 31st to March 2, 2021, for employers with 50+ employees, to provide employees with a copy of their Form 1095-C or 1095-B required under the ACA. Forms are still required to be filed with the IRS by February 28, 2021 if completing paper filing and by March 31, 2021 for electronic filing (required for employers with more than 250 1095-Cs).
1099 – NEC
Beginning with tax year 2020, employers must begin to use Form 1099-NEC to report nonemployee compensation if all of the following apply:
- Payment is made to someone who is not your employee.
- Payment is made for services in the course of your trade or business.
- Payment was made to an individual, partnership, estate, or corporation.
- Payments made to the payee were at least $600+ for the year.
Form 1099-NEC’s are required to be given to nonemployees and filed with the IRS by January 31st (February 1, 2021, because January 31st is a Sunday) after the reporting year. You will still be required to file the Form 1099-MISC for items such as rent, healthcare payments, payment to an attorney, other income payments, etc.
For additional information and instructions, please visit the IRS website.