Staying on top of changes in HR compliance can be a difficult task. To help, we’ve compiled 2023’s most anticipated updates.
Q: Did the Social Security taxable wage limit change for 2023
A: Yes, the Social Security wage base increased to $160,200. The employer and employee share of Social Security tax remain at 6.2%; Medicare at 1.45%. As of 2021, an added Medicare tax of 0.9% has been imposed on employee wages exceeding $200,000 in a calendar year.
Q: I’m receiving questions from employees about how federal taxes will change for 2023, what can I provide?
A: The IRS encourages everyone to use the Tax Withholding Estimator to perform a quick “paycheck checkup.” Employers can use the IRS Tax Withholding Assistant tool (download in Excel) to calculate withholding based on employee elections on Form W-4.
Q: What changes did the IRS make to the federal income tax for the filing status in 2023?
A: Standard deductions for 2023 are as follows:
- Married couples filing jointly; or Qualifying Widow(er): $27,700
- Single/Married filing separately:$13,850
- Head of Household: $20,800
Q: What changes did the IRS make to the federal income tax withholding tables?
A: Rates remain the same as established by the TCJA (Tax Cuts and Jobs Act of 2017). The 2023 rates for a single filer are 10% for $0 to $11,000, 12% for $11,001 to $44,725, 22% for $44,726 to $95,375, 24% for $95,376 to $182,100, 32% for $182,101 to $231,250, 35% for $231,251 to $578,125, and 37% for $5578,126 or more. The income range for each rate bracket has been adjusted upwards slightly for inflation.
Q: What changes did the IRS make for Form W-4?
A: Form W-4 hasn’t changed since its overhaul in 2020. It is divided into five steps:
- Enter Personal Information
- Multiple Jobs or Spouse Works
- Claim Dependents
- Other Adjustments
Withholding allowances have been eliminated, meaning employees can no longer claim them. Employees who want lower tax withholding must either claim dependents or use the deductions worksheet and enter that amount in Step 4. An employee can also request their employer withhold more tax in Step 4. Checking the box in Step 2 will also increase the amount of federal income tax withheld.
Q: Are there any changes to the supplemental wage rate?
A: For those receiving up to and including $1M in supplemental wage payments in 2023, the rate is still the same as 2022 at 22%. For those receiving an amount that exceeds $1M in supplemental wages in 2023, the rate remains the same as 2022 at 37%. The 37% rate is applicable even if an employee claims exemption from federal income tax withholding on Form W-4.
Q: What changes were made to qualified fringe benefits?
A: For tax year 2023, qualified fringe benefits are set at:
- Qualified parking: $300; up from $280 per month
- Commuter highway vehicle and transit pass (combined): $300
- Adoption assistance: $15,950; up from $14,890
Q: What are the qualified retirement contribution limits for 2023?
A: Qualified retirement contribution limits are as follows:
- Elective deferral limits for the 401(k), 403(b) and 457 plans increase to $22,500, up from $20,500 in 2022
- Catch-up (age 50 or older) increases to $7,500, up from $6,500
- Annual compensation limit increases to $330,000, up from $305,000 in 2022, for 401(k), 403(b), SEP and profit-sharing plans
- Defined benefit plan limit increases to $265,000, up from $245,000 in 2022
- The contribution limits for SIMPLE plans increase to $15,500, up from $14,000 in 2022
- The SIMPLE catch-up limit increases to $3,500, up from $3,000 in 2022
Q: What are the 2023 HSA and FSA limits?
A: Health Savings Accounts contribution limits have risen slightly:
- Self-only: $3,850; up from $3,700 in 2022
- Family: $7,700, up from $7,400 in 2022
- HSA catch-up contributions (age 55+) are still limited to $1,000
- FSA limits increased to $3,050, up from $2,850 in 2022
- Cafeteria plans allow a carryover of $610, up from $570 in 2022
Q: Did any states change their minimum wage?
A: A: Yes, at least 25 states have changed the minimum wage for 2023. Most changes have an effective date of January 1, 2023, but some don’t kick in till the second half of the year. To help business track these and future rises, Paycor provides a comparison chart with complete 2023 state minimum wage rates. Remember, businesses must always select the highest of the federal, state, and local minimum wages applying to your jurisdiction.
Q: What trends are you seeing in state withholding?
A: There have been normal changes to withholding tables based on inflation or annual changes to standard deduction or allowance amounts.
Q: What do we need to know about the states that have enacted Paid Family and Medical Leave (PFML) with a payroll tax component?
A: Several states have new paid family leave legislation for 2023:
Beginning on Jan. 1, 2023, SDI and PFL benefits for employees in their highest-earning quarter who make more than $1,749.20 will receive 55% of those earnings divided by 13, no more than the weekly maximum.
Hawaii’s 2023 Temporary Disability Insurance (TDI) weekly wage base increased to $1,318.48. Hawaii law allows employee contributions of up 0.5% of wages, with a maximum weekly contribution of $6.59. The 2023 maximum weekly benefit is $765.
Massachusetts’ maximum weekly benefit amount for 2023 is $1,129.82 per week. Total contributions in 2022 have decreased to 0.63% in 2023. Employers with at least 25 Massachusetts employees must pay a medical leave contribution of 0.318% in 2023, a decrease from 0.336% in 2022. Employees’ 2022 contributions also have dropped to 0.11% for family leave and 0.208% for medical leave.
- New York
New York’s 2022 employee contribution rate for PFL decreases to 0.455% of an employee’s wages. Contributions are limited to an annual maximum of $399.43 in 2023. This is down from $423.71 in 2022 – ($24.28 less). Weekly PFL benefit is 67% of the employee’s average weekly wage with a maximum weekly benefit of $1,131.08, an increase from $1,068.36 in 2022.
- Rhode Island
Rhode Island has not reported any tax changes, but it did increase the maximum weekly benefit amount from $661-$826 to $680-$850.
The family-leave insurance total contribution will be 0.8% in 2023. (Employers pay 27.24%; Employees pay 72.76% of premium)
- Washington, DC
Effective October 1, 2022, the Universal Paid Leave (UPL) law added 2 weeks of paid prenatal leave, increased the maximum duration of medical leave from 6 to 12 weeks, and allows use for miscarriage or stillbirth. UPL also allows employees using parental/new child bonding and prenatal leave to take a total of 14 weeks paid leave in one 52-week period instead of 8 weeks. The maximum weekly benefit for leave is $1,000.
How Paycor Can Help
HR professionals who want an easy way to manage payroll and other HR-related tasks should take a look at Paycor. Our technology comes with dedicated support from HR experts, who ensure our product is always up to date with the latest payroll compliance legislation.
Paycor is the payroll software for leaders who want to make a difference. It has all of your business needs covered so you can focus on what’s really important – growing revenue and creating great work environments.
Contact us today for a free consultation!