Around this time each year, we report on all the promised and potential new changes and updates to payroll requirements. 2023 is no exception, and it's quickly approaching. We compiled the following extensive list of items that may result in some payroll changes for your organization. We understand that this is a very long list to review, but we hope that the annual update provides a valuable reference guide for your organization. You might start thinking about these so that you can act sooner than later.
FICA Tax Rate Increase
Beginning January 1, 2023, The maximum amount of earnings subject to the Social Security payroll tax will increase $13,200, from the current $147,000 to $160,200. The 7.65% employee tax rate remains unchanged and is the combined rate for Social Security (6.2%) and Medicare (1.45%). There is no wage limit for Medicare. 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 27th through December 31, 2020. The first half of the deferred payments were required to be paid by December 31, 2021, and the other half by December 31, 2022.
State Unemployment Tax Act (SUTA)
The current Oregon SUTA base for 2022 is $47,700. The 2023 base is expected to be $50,900. The Washington State base for 2022 is currently $62,500. The base rate for 2023 we have been seeing is $67,600. The 2023 base rates for Oregon and Washington have not been confirmed by the states. If we see a change, we will update this posting. 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%.
401(k) Limit Increase
The contribution limit for employees who participate in 401(k) and 403(b) plans in 2023 will increase from the current $20,500 to $22,500. Employees age 50 and over will have the 'catch-up' contribution limit of $7,500 (up from $6,500). The maximum contributions from all sources (employer and employee combined) will rise by $5,000 in 2023 to $66,000 for all employees age 49 and younger and $73,500 if age 50 or older.
Flexible Spending Account (FSA) / Parking and Transit Limits
Employee pre-tax deductions for FSA health reimbursement accounts will increase for the 2023 plan year to $3,050. This is an increase of $200 over 2022. For health FSA plans that contain the carryover feature, the maximum carryover amount for 2023 is increasing to $610. Parking and transit limits for 2023 are also increasing slightly to $300 per month. The dependent care reimbursement remains unchanged at $5,000 ($2,500 if married and filing separate taxes).
Health Savings Account (HSA) Contributions
For 2023, the IRS increased pre-tax deductions for HSAs to $3,850 for individual coverage (a $200 increase) and $7,750 for family coverage (a $450 increase). This is for members that have high deductible medical coverage that qualifies to be paired with a Health Savings Accounts.
Applicable Large Employers (ALEs) that choose to paper file the annual ACA 1095-C forms for 2022 must do so by February 28, 2023. This option is only available for employers with 250 or less 1095-C forms. Beginning with the 2023 tax year filing, the paper filing option will only be available to employers with 10 or fewer 1095-C forms. The electronic filing deadline is March 31, 2023. The benefits of electronic filing include instant IRS acknowledgment on submission and immediate response if the submission was accepted or rejected. ALES must provide 1095-C forms to full-time employees by no later than March 2, 2023.
Workers’ Compensation pure premium rates are the base rates before insurer costs are added. The pure premiums rates for 2023 are expected once again to decrease by 3.2% from 2022. 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 remain unchanged from 2022, at 9.8% of premiums paid. This will be the first time since 2016 that the premium assessment has not increased.
Oregon Paid Family and Medical Leave
The latest tax arriving in Oregon that seems to be all the buzz is Paid Leave Oregon. Paid Leave Oregon is a family, medical, and sick leave insurance program that was created to provide eligible employees paid time off work for qualifying reasons. Contribution requirements under Paid Leave Oregon begin January 1, 2023, and benefits begin September 3, 2023. Employers are responsible for 40%, and employees 60%, of the contribution rate, which is 1% for 2023. Employers with 25 or more employees will be required to submit the employee and employer contributions. Employers with fewer than 25 employees will not need to make the employer contributions but will still be required to submit the employee portion. We encourage you to visit Oregon.gov for additional information and requirements, such as the requirement to post a notice detailing employees’ rights and duties under Paid Leave Oregon.
Oregon Local Taxes
In calendar year 2023 the Lane Transit District tax will be increasing from the current .0077 to .0078. The Wilsonville transit tax will remain unchanged at .005. The TriMet transit tax rate for 2023 is .008037, which is an increase from the current .007937.
Oregon Workers’ Benefit Fund
There is no change once again in 2023 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 on a quarterly basis. This fund pays for benefits to injured workers and their beneficiaries. The fund also helps injured workers return to work.
Oregon Metro Supportive Housing
In May 2020, voters approved a new regional supportive housing services program funded by personal and business income taxes. The personal income tax is 1% on taxable income above $125,000 for individuals ($200,000 for those filing jointly). The business income tax is 1% on net income with gross receipts above $5 million. Tax filers that have income from business activity both within and without the Metro district must apportion that income to determine the amount earned within the Metro district. Oregon residents within the Metro jurisdiction are subject to this tax as are non-residents with wages paid for work performed within the Metro District. Metro’s boundaries do not align with Clackamas, Multnomah, and Washington Counties. To determine if a residence or workplace is within Metro’s jurisdiction, it is advised to use the Boundary Address Lookup on Metro’s website. Taxes are owed beginning with the 2021 tax year and expire after 10 years unless renewed by voters.
Preschool For All (PFA) Tax
On November 3, 2020, Multnomah County voters approved Tax Measure 26-214 establishing a tuition-free preschool program. The PFA program is funded by a personal income tax of 1.5% on taxable income over $125,000 for individuals ($200,000 for joint filers), and an additional 1.5% (for 3% total) on taxable income over $250,000 for individuals ($400,000 for joint filers). Residents of Multnomah County have 100% of their Oregon Taxable Income subject to the tax thresholds. For non-residents of Multnomah County, income sourced within the County is subject to the tax withholdings. The rate will increase by 0.8% in 2026. The withholding became mandatory for all employees and employers that meet requirements in 2022 and going forward. For additional information, please reference the Multnomah County FAQ.
OregonSaves was rolled out in October 2017 and is a mandatory state retirement program. The program is applicable to all size employers. The final deadlines are approaching and apply to employer groups of 3-4 employees, which are required to sign up by March 1, 2023. Employers with 1-2 employees much sign up by July 31, 2023. The deadlines for all other size employers have passed. Employers that do not offer an employer-sponsored retirement plan are required to facilitate OregonSaves. Employees make contributions to personal IRAs through payroll deductions starting at 5% of gross pay and increasing 1% each year of participation (employees can choose additional amounts), up to 10%. Employers that are out of compliance are subject to fines and penalties.
Washington Standard Occupational Classification (SOC) Code Reporting
In 2020, the Legislature enacted Substitute House Bill 2308, which requires employers to include SOC codes for each worker on their quarterly tax reports. This is effective for the fourth quarter filing of 2022. More information about the SOC codes and requirements can be found on the Washington Employment Security Department’s website.
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, 2023, the premium amount will increase to 0.8% for gross wages up to the 2023 Social Security cap of $160,200. The premium is shared by the employer (27.24%) and the employee (72.76%) 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.
Washington Long Term Care
A mandatory payroll tax to fund Washington State's new long-term care program was set to begin January 1, 2022, but the Washington Cares Fund was delayed by the legislature for 18 months. Beginning in January 2023, exemption applications will be available for certain groups, and July 1, 2023, workers will begin contributing to the fund. Benefits become available for qualified, eligible individuals in July 2026. Washington workers will pay 0.58% of their gross wages towards the Washington Cares Fund. Employers won’t pay any share of the contribution for their employees unless they choose to. Employers are responsible for collecting and remitting payments. Unlike the Washington Paid Family and Medical Leave program, contributions do not top out at the Social Security maximum. For additional information, please reference the Washington Cares Fund website.
Washington Minimum Wage and Exempt Salary Threshold Increases
Effective January 1, 2023, the Washington state minimum wage will increase to $15.74 per hour. This is a $1.25 increase (it is currently $14.49). The exempt salary threshold is tied to a multiple of the minimum wage, so it is increasing as well. The exempt salary threshold for employees working for small employers (1-50 employees) will be increasing to $57,293.60 per year ($1,101.80 per week). For large employers (51+ employees) the threshold increases to $65,478.40 ($1,259.20 per week). Seattle and The City of SeaTac have their own local minimum wage rates that exceed the state minimum wage. To find the correct wage for your organization if you are in the Seattle area, please visit the City of Seattle website.