As an owner, it can be hard to keep track of everything at the start of the new year, including changes and additions to employment laws. In 2019, there are plenty of important human resource and payroll changes to consider. These changes are especially important to small business owners. Here are few:
Retirement Savings Contributions
While SEP contribution levels stayed the same, contribution levels for 401(k)s, SIMPLE IRAs and Roth IRAs increased for 2019.
401(k) contributions for employees increased to $19,000, along with 403(b) and most 457 plans. SIMPLE retirement accounts increased to $13,000.
For Roth IRAs, income phase-out range increased. Married couples filing jointly will see the amount increased from $189,000 to $199,000. For singles and heads of household, the income phase-out range bumped up with a range of $122,000 to $137,000. This is an increase from the previous range of $120,000 to $135,000.
Both traditional and ROTH IRAs contribution limits rose by $500 to $6,000 (over the $5,500 limit in 2018). However, catch-up contributions if you’re 50 or older remain at $1,000.
Medical and Healthcare
- FSAs If you offer a flexible savings account for medical expenses, the amount employees can contribute increased from $2,650 to $2,700. There is one caveat: the amount for dependent care is fixed at $5,000.
- Healthcare Savings Accounts: Employees with individual coverage can contribute $3,500 (up from $3,450 in 2018), and $7,000 for a family plan (up from $6,900 in 2018).
- Adoption benefits: If you’re looking to adopt, the annual Adoption Assistance Limit increased to $14,080 (up from $13,810 in 2018).
- QSEHRA: If you’re offering a Qualified Small Employer Health Reimbursement Arrangement, also called QSEHRA or a small business HRA, self-only coverage increased to $5,150 (up from $5,050) and $10,450 (up from $10,250).
New thresholds for the Small Business Health Care Tax Credit
If you enrolled in a Small Business Health Options Program (SHOP) or are considering doing it, you can then apply for the small business health care tax credit.
To do so you must have, according to HealthCare.gov:
- Fewer than 25 full-time equivalent (FTE) employees
- Pay at least 50 percent of your full-time employees’ premium costs
- The maximum average employee salary must be $54,200 or lower (up from $53,200 in 2018)
It’s also important to note, for eligible small employers the average annual wage level at which the tax credit begins to phase out is $27,100 (up from $26,600).
Taxes for unemployment vary on a state-by-state level. The rate usually depends on the size of your company and how long you’ve been in business, as well as other factors like the number of former employees who have applied for unemployment benefits, your company’s historical turnover rates, and your industry .
Each state has a program to fund its unemployment pool via the State Unemployment Tax Act, better known as SUTA. Employers must pay this on behalf of their employees. American Payroll Association has a free chart of State Unemployment Insurance Taxable Wage Bases.
States seeing a wage base increase 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, Washington and Wyoming.
Missouri and Vermont will see decreases.
The Federal Unemployment Tax Act — also called FUTA — tax rate in 2019 is 6 percent. This applies to the first $7,000 you paid to each employee as wages during the year. According to IRS.gov, you can usually take a credit against this tax if you’ve paid state unemployment taxes. If you’re entitled to the maximum 5.4 percent credit, then the FUTA tax rate, after the credit, is reduced to 0.6 percent.
Nineteen states increased their minimum wage at the start of 2019. Another two states—Washington and Oregon—will see increases in July.
Social Security Taxes and FICA
Payroll taxes can be complicated. An employee’s paycheck typically includes taxes for federal income, Social Security, Medicare and in many locations, state income tax.
The Social Security tax rate of 12.4 percent is split between employer and employee who each pay 6.2 percent of the gross pay — while the tax rate remains the same for 2019, the tax cap increased to $132,900 in annual earnings for 2019 — up from $128,700 in 2018. This means the maximum amount of Social Security tax employers and employees will each pay in 2019 is $8,239.80. This is a $279 increase from the $7,960.80 amount in 2018.
The one exception, if you’re self-employed, then you pay the full 12.4 percent.
Social Security are then combined with Medicare taxes for FICA (Federal Insurance Contributions Act) taxes. (Federal law also requires employers to withhold an additional 0.9 percent for anyone who earns more than $200,000.) The Medicare tax rate remained the same at 1.45 percent which is applied to all earned wages since there aren’t threshold limits for Medicare taxes.
According to the IRS, for wages that don’t exceed $132,900, the combined social security tax rate and Medicare tax rate is 7.65 percent each for the employee and employer for wages paid in 2019.
For those who are self-employed, FICA tax rate is 15.3 percent — which combines the Social Security tax rate of 12.4 percent and Medicare tax rate of 2.9 percent.
Extra perks, like qualified transportation fringe benefits help many employers who are working with millennials. If you offer these benefits which include vanpooling or transit passes, the tax-free amount increased to $265 a month, up from $260 a month in 2018.
If you need more insights, review the IRS’ Employer’s Tax Guide to Fringe Benefits.