2014 Payroll Tax Changes

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There are several Payroll Tax Changes that you need to be aware of as we begin 2014.

Small Business Health Premium Tax Credits

Tax years 2010 through 2013, allowed small business owners to take the maximum credit allowed of 35 percent of premiums paid for small business employers.

There will be changes to the credit for tax years beginning in 2014 or later.

  • The maximum credit will increase to 50 percent of premiums paid for small business employers
  • Small employers must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace, to be eligible for the credit,.
  • The credit will be available to eligible employers for two consecutive taxable years.

So what does that mean for you?  If you pay $25,000 a year toward workers’ health care premiums — and if you qualify for a 15 percent credit, you save... $3,250.  If you save $3,250 a year from tax year 2010 through 2013, that’s total savings of $15,000. If, in 2014, you qualify for a slightly larger credit, say 20 percent, your savings go from $3,250 a year to $5,000 a year.

Even if you did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

Small Tax-Exempt business owners also get some good news as well.  The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability.

Minimum value determination

Whether eligible employer-sponsored plans provide minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment.

If an employer plan fails to meet the minimum value standard, a large employer (50 or more full time employees) will be assessed a penalty.

The minimum value standard is met if the employer's plan pays 60% or more of the plan's share of the total allowed costs of the benefits provided under the plan.

Minimum value is calculated by dividing the anticipated covered medical spending of essential health benefits (EHB) coverage (for the population covered by a typical self-insured group health plan) by the total anticipated allowed charges for EHB coverage for a typical self-insured group health plan population.

Employee Withholding Changes

  • The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $17,500.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $5,500.
  • The limit for defined-contribution plans is $52,000, up from $51,000.
  • The general definition of a highly compensated employee is unchanged at $115,000.
  • The definition of a key employee in a top-heavy plan increases to $170,000, up from $165,000.
  • The limited compensation amount increases to $210,000 from $205,000.
  • The general annual qualified plan compensation limit rises to $260,000 from $255,000.
  • The foreign-earned income exclusion amount is $99,200, up from $97,600.
  • The annual dollar limit on employee contributions to employer-sponsored health-care flexible spending arrangements remains unchanged at $2,500.

FICA Rate and Wage Bases

  • The Social Security wage base for 2014 will increase to $117,000 from $113,700.
  • The FICA contribution rate is scheduled to remain at 6.2% for 2014.
  • For the Medicare (HI) portion of the FICA taxes, there is no wage base and all wages earned are subject to the HI tax, which is also paid by employers and employees. Each pays at a 1.45% rate, although employees pay an additional 0.9% on wages greater than $200,000.
  • A 1.5% cost-of-living increase amount is to take effect, affecting several thresholds for benefits and coverage. The Social Security tax annual coverage threshold amount for domestic employees increases to $1,900 and remains $1,600 for election workers.

SUTA Wage Bases

Across the U.S. a large number of states are continuing to deal with solvency issues in their unemployment insurance trust fund. At this time, 13 state jurisdictions have decided to change the taxable wage base limits for 2014. States are able to set limits on the wage base that are taxable for unemployment insurance purposes as long as the limit is not less than the federal standard of $7,000.

SUTA wage base changes scheduled for 2014:

  • Colorado 11,300 to 11,700
  • Delaware 10,500 to 18,500
  • Illinois 12,900 to 12,960
  • Iowa 26,000 to 26,800
  • Kentucky 9,300 to 9,600
  • Montana 27,900 to 29,000
  • Nevada 26,900 to 27,400
  • New Jersey 30,900 to 31,500
  • New York 8,500 to 10,300
  • Oklahoma 20,100 to 18,700
  • Oregon 34,100 to 35,000
  • Pennsylvania 8,500 to 8,750
  • Rhode Island 20,200 to 20,600**
  • South Dakota 13,000 to 14,000
  • Washington 39,800 to 41,300

**For employers that pay at the highest UI tax rate of 9.79%, the wage base is $22,100.

DISCLAIMER: The information in this article is current as of the publish date; however, tax regulations are subject to change at any time. This article is for informational purposes only and does not constitute tax or legal advice. If you want tax or legal advice, please contact a qualified tax professional or attorney.