This payroll update was compiled by the following members of Gross Mendelsohn's tax department: Dawn Ebeling, CPA; Conor Kregecz, CPA; and Paul Wallace, CPA, CFP(R).
Social Security and Medicare tax
As of January 1, 2018, the maximum amount of annual earnings subject to Social Security increases to $128,400 (from $127,200 in 2017). There is no limit on the amount of earnings subject to the Medicare tax.
The maximum Social Security tax to be deducted from an employee’s compensation during 2018 will be $7,960.80 (6.2% x $128,400).
The employer Social Security and Medicare tax rate will remain unchanged at 6.2% and 1.45%, respectively. The employee Medicare tax rate will remain at 1.45%, except for high wage earners.
High income taxpayers who have wages, compensation or self-employment income in excess of certain filing status thresholds ($250,000 if married filing jointly, $125,000 if married filing separately, and $200,000 for all others), will be subject to an additional Medicare tax of .9%. For withholding purposes, wages in excess of $200,000, regardless of the filing status, will be taxed at a tax rate of 2.35% (1.45% + .9%). Only employees are subject to this additional Medicare tax.
Income tax withholding
Employers should implement the 2018 withholding tables as soon as possible but no later than February 15, 2018. Use the 2017 withholding tables until you are able to implement the 2018 withholding tables. To view the 2018 tables, click here.
There will be no change in the Maryland (MD), Delaware (DE), Pennsylvania (PA) or Virginia (VA) withholding tables. The District of Columbia (DC) has adjusted withholding tables due to an increase in the personal exemption amount.
MD’s maximum individual income tax rate remains at 5.75%. MD local county rates are unchanged except for Cecil, which increases from 2.80% to 3.00%.
DE, DC and VA’s maximum individual income tax rates will remain at 6.6%, 8.95% and 5.75%, respectively. PA’s individual income tax rate will remain at 3.07% for 2018.
Effective January 1, 2018, the federal tax withholding rate on supplemental wages (e.g., bonus payments) exceeding $1 million during a calendar year drops to 37% (from 39.6% in 2017). The rate for supplemental wages up to $1 million is subject to a flat rate increases from 25% to 28%.
The federal unemployment tax (FUTA) deposit rate is .6% for 2018. The federal taxable wage base will remain at $7,000. PA taxable wage base will increase to $10,000 (from $9,750 in 2017). Unemployment taxes are paid by the employer. PA employees are responsible for an additional withholding of .06% of total wages (down from .07% in 2017
State unemployment tax rates vary according to the employer’s experience and are sent to the employer. State 2018 wage bases and employer 2017 rates are as follows:
Wage Base 2017 Rates
MD $ 8,500 from .3% to 7.5%
DE $16,500 from .385% to 8.285%
DC $ 9,000 from 1.8% to 7.2%
PA $10,000 from 2.643% to 11.262%
VA $ 8,000 from .13% to 6.23%
In the event you did not receive a 2018 MD unemployment insurance tax rate, it is available by calling 1.800.492.5524. Payment option plans are available for MD employers in economic hardship.
MD and PA require all employers to file quarterly contribution reports electronically. DC employers with at least five employees are required to submit reports electronically.
The minimum threshold amount for quarterly FUTA tax deposits remain at $500.
All federal tax deposits (employment tax, excise tax, corporate income tax, etc.) must be made by electronic funds transfer (EFT). Generally, EFTs are made using the “Electronic Federal Tax Payment System” (EFTPS). Employers may arrange for their financial institutions to initiate a same-day tax wire payment on the employer’s behalf. De Minimis deposit rules still apply for employment taxes of less than $2,500 for a return period. Those who fail to use EFTPS will be subject to a 10% penalty.
State EFT thresholds for tax payments are as follows: MD - $10,000 or more; DC - $5,000 or more; PA - $1,000 or more; DE and VA require EFT for payment of all state taxes. MD, DC, DE and PA allow online processing of returns. VA requires every employer to file all withholding tax returns and payments electronically.
Employers should receive notification from the IRS and state taxing authorities as to the frequency of their depository requirements. Semi-weekly depositors have three banking days to make a deposit. Monthly depositors’ due dates are the 15th day of the next month for DE, MD, PA and the IRS, the 20th for DC and the 25th for VA. Quarterly depositors may remit accumulated tax with the quarterly tax returns which are generally due the last day of the month following the end of each calendar quarter. MD and DC’s quarterly returns are due the 15th and 20th day of the following month, respectively. DE’s eighth-monthly depositors’ payments are due within three working days after the close of the eighth-monthly period. Eighth-monthly periods end on the 3rd, 7th, 11th, 15th, 19th, 22nd, 25th and the final day of every month.
Employers can view deposit dates and sign up for email reminders at the IRS Online Tax Calendar through the IRS website www.tax.gov/calendar. IRS Direct Pay is available at www.irs.gov/payments.
Accelerated deposit dates are required for federal tax accumulations of $100,000, which are due the next business day. VA employers must also remit VA withholding within three days of the date withheld. MD employers who withheld $15,000 or more during 2017 and currently have accumulated $700 or more in withholding tax must make a deposit within three business days after the payroll pay date. Employers who are allowed to file federal withholding tax returns on a monthly basis may apply to MD for a waiver of the three-day rule described above.
Federal rules require employers filing 250 or more W-2 forms to file electronically. DE and PA follow the federal threshold and MD’s requirements remain at 25 or more. MD and PA allow withholding statements on magnetic media or other machine-readable formats. VA requires e-filing for all employers.
Employers required to file at least 50 W-2 forms must report the aggregate cost of employer-sponsored health insurance coverage on the 2017 W-2 form. The IRS has granted exemption to companies that file less than 50 W-2 forms until further notice. Employers with more than 50 full-time employees but less than 250 did not previously have to file reports in regard to health insurance.
All federal and state Form W-2s are now due to the taxing authorities by January 31, 2018.
Employers who e-file W-2 Forms will have a new 16-digit alphanumeric verification code for Box 9 to reduce tax fraud and identity theft. This new box appeared on the 2016 Form W-2 but did not have any designation until 2017.
Information return penalties
Penalty amounts for failing to provide timely, complete and correct information returns (W-2 and Form 1099) range from $50 - $260 per return with a maximum of $3,218,500 ($1,072,500 for small businesses).
Additionally, payers are required to acknowledge their compliance with information return filings on their business income tax returns.
The federal minimum wage rate is $7.25 per hour for employees covered by the Federal Fair Labor Standards Act. PA and VA follow the federal law. DE’s rate remains at $8.25. Current and future hourly minimum wage rate for MD and DC are as follows:
Effective October 1, 2017, the minimum wage for Prince George’s County of Maryland increased to $11.50/hour.
New hire forms
On July 17, 2017, the United States Citizenship and Immigration Services (USCIS) released an updated version of the Form I-9 for Employment Eligibility Verification, with a mandatory implementation of September 18, 2017
Using an old form after September 18, 2017 and beyond would subject the company to fines and/or penalties.
Online self-service portals
If you have any questions, contact us online or call 800.899.4623.