Payroll Trends

Payroll 2021: Out and In

The forces of change continue to dominate payroll, and 2021 will see even more changes for employers in how they handle worker pay.’s exclusive “out and in” for 2021 gives practitioners a glimpse at what is going away as the new year starts, and what will come into play as 2021 progresses.

However, many key payroll-related numbers for 2021 will remain the same as 2020 (although there always is the possibility that legislative changes could impact these as well in 2021). The elective tax-free deferral limit for 401(k)-type programs ($19,500), for example, remains the same as in 2020, as is the over-50 additional catch-up amount ($6,000). 

Other figures that remain the same are: flat tax rate on supplemental wage payments (22%; 37% once $1 million in supplemental wage payments is reached); the general tax rates for individuals remain the same in 2021 as 2020 (10%, 12%, 22%, 24%, 32%, 35%, 37%); the Social Security payroll tax rate stays at 6.2% up to the new wage base (see below); Medicare/Hospital Insurance tax rates remain the same as well at 1.45% for most and 2.35% for individuals with incomes generally higher than $200,000, once that amount has been reached for the year.

But, beyond that, here are the major things in payroll that are going “out” and coming “in” in 2021!

Working at Home Office/Home work blend
New Form W-4New Form 941X
State/Local Withholding Based on Company Sites Where Employees Worked State/Local Withholding Taxes Based on Where Employee Works Remotely
COVID-Related Employment Tax Credits Under March 2020 CARES ActClaiming Past Credits
Social Security Tax Deferrals Under CARES Act and President’s OrderAdditional Social Security Tax Payments
COVID-Related Mandated Paid Time Off Under March 2020 FFCRA LawGenerally Mandated Paid Time Off
Paycheck Protection Program Under March 2020 CARES ActPaycheck Protection Program Audits
Suspended Withholding on Student LoansNew Student Loan Withholding Orders
COVID-Related Emergency Unemployment Higher Unemployment Tax Contributions
Social Security Wage Base = $137,700 Social Security Wage Base = $142,800
Standard Business Mileage Rate = 57.5 cents-per-mile Standard Business Mileage Rate = 56 cents-per-mile
Employees Accessing Pay on PaydayEarned Wage Access/On-Demand Pay
Manual ReconciliationsAutomated Reconciliations

Total Defined Contribution Tax-Free Limit = $57,000

Total Defined Contribution Tax-Free Limit = $58,000

Form 1099-MISCForm 1099-NEC

Where to go from here

As in 2020, the payroll professionals who kept a good deal of the economy going despite illnesses, lockdowns, and social and political upheaval can expect more of the same for much of 2021. 

Although most see a light at the end of the tunnel for 2021, those in payroll will need to stay focused on their commitment to process accurate and timely pay under continued trying circumstances, just like the general public is being urged to stick with personal protection protocols until the infection curve declines.