Payroll taxes are a critical aspect of running a business, as it involves the deductions and contributions that employers and employees make to fund programs like Social Security and Medicare. Staying informed about the latest developments in payroll tax news is crucial for employers to ensure compliance with tax laws and regulations. Here are some of the recent updates in the world of payroll taxes that every employer should be aware of.
One of the most significant pieces of payroll tax news is the expiration of the employee portion of the payroll tax deferral that was implemented by the Trump administration in 2020. Under this temporary measure, employees were allowed to defer their portion of Social Security taxes from September 1 to December 31, 2020. However, the IRS announced that employers must now begin collecting these deferred taxes from employees’ paychecks starting January 1, 2021. Employers are required to withhold and pay back these deferred taxes by April 30, 2021, to avoid penalties and interest.
Another important update in payroll tax news is the annual adjustments to the Social Security wage base for 2021. The Social Security Administration announced that the maximum amount of earnings subject to Social Security taxes will increase to $142,800 in 2021, up from $137,700 in 2020. This means that employees will pay 6.2% of their earnings up to the wage base limit towards Social Security taxes, while employers will also contribute an equal amount.
In addition to the changes in the Social Security wage base, the IRS has also updated the income tax withholding tables for 2021 to reflect the revised tax brackets and rates following the passage of the Tax Cuts and Jobs Act in 2017. Employers are required to use these new tables to calculate the amount of federal income tax to withhold from employees’ paychecks, ensuring that they are in compliance with the latest tax laws.
One of the most significant payroll tax news developments in recent months is the postponement of the deadline for employers to file and pay their payroll taxes due to the ongoing COVID-19 pandemic. The IRS announced that it is extending the deadline for employers to deposit federal employment taxes, including Social Security and Medicare taxes, for the first two quarters of 2021. Employers now have until July 31, 2021, to make these deposits, providing them with additional time to manage their cash flow during these challenging times.
Furthermore, the Consolidated Appropriations Act, 2021, signed into law in December 2020, introduced several changes to payroll tax credits that are designed to provide relief to businesses impacted by the pandemic. One of the key provisions of the legislation is the extension and expansion of the Employee Retention Tax Credit (ERTC), which provides a refundable tax credit for employers that retain their employees during the pandemic. Employers can now claim a credit of up to $7,000 per employee per quarter for wages paid between January 1 and June 30, 2021.
Employers should also be aware of the changes to the paid sick and family leave provisions under the Families First Coronavirus Response Act (FFCRA), which were extended through March 31, 2021, by the Consolidated Appropriations Act, 2021. Employers who voluntarily provide paid sick and family leave to employees affected by COVID-19 can claim a corresponding tax credit to offset the cost of providing these benefits.
In conclusion, staying informed about the latest developments in payroll tax news is essential for employers to ensure compliance with tax laws and regulations. From changes to the Social Security wage base and income tax withholding tables to updates on payroll tax credits and deadlines, employers need to stay up-to-date on these developments to avoid penalties and ensure that their payroll practices are in line with current regulations. By keeping abreast of the latest payroll tax news, employers can navigate the complexities of payroll taxes more effectively and ensure the financial health of their businesses.