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Payroll Education Payroll Taxes Payroll Trends

Payroll 2022: What’s Out and In

With inflation in 2021 at its highest in many years, several key payroll-related numbers for 2022 increased and there are a lot of other issues that will be the focus of payroll this year.

PayrollTimes.com’s annual exclusive “out and in” for Payroll 2022 provides a glimpse at what no longer should be considered as the new year starts, and what will come into play as 2022 progresses.

There were some figures, set by tax law, that remain the same and they include the 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 2022 as they were for 2021 (10%, 12%, 22%, 24%, 32%, 35%, 37%).

The Social Security payroll tax rate for 2022 stays at 6.2%, and that rate is to be applied up to the new wage base of earnings ($147,000, see below).

The Medicare/Hospital Insurance tax rates remain at 1.45% up to $200,000 in wages and 2.35% (for the employee only) on wage amounts  exceeding $200,000 in 2022.

The $6,500-a-year additional catch-up deferral amount for those individuals over 50 with 401(k)-type accounts also was unchanged.

And it always remains possible that legislative changes could impact these and others in 2022. 

But, beyond that, here are the major things in payroll that are going “out” and coming “in” for 2022:

OUT

IN

Full Return to Office

Hybrid Work-From-Home Arrangements

250 Forms: Form W-2 Electronic Filing Threshold 

100 Forms: Form W-2 Electronic Filing Threshold 

Form 7200: Advance Employee Retention Credit (ERC)

Form 941, Schedule B: Reporting Additional Taxes Because ERC Ended 

$19,500: Tax-Free Deferral Limit for 401(k)-Type Programs

$20,500: Tax-Free Deferral Limit for 401(k)-Type Programs 

State Exceptions for Income Tax Withholding On In-State Telework/Remote Arrangements 

State/Local Withholding Taxes Based on Where Employee Works Remotely

$142,800: Social Security Wage Base

$147,000: Social Security Wage Base

COVID-Related Employment Tax Credits

Taxes On Previously-Eligible Credit Amounts

Social Security Tax Payment Deferrals

Payments of Deferred 2020 Amounts

56 cents-per-mile: Standard Business Mileage Rate

58.5 cents-per-mile: Standard Business Mileage Rate

COVID-Related Mandated Paid Time Off

State-Mandated Paid Time Off

Suspended Withholding on Student Loans

New Student Loan Withholding Orders

COVID-Related Emergency Unemployment 

FUTA Credit Reduction States 

Weekly or Biweekly Payroll Schedule

On-Demand Pay to Digital Wallets

Manual Reconciliations

Automated Reconciliations

Total Defined Contribution Tax-Free Limit

$58,000

Total Defined Contribution Tax-Free Limit

$61,000

As in 2021, more resilience and dedication will be required of payroll professionals as they navigate illnesses, changes in the employment environment, supply-chain challenges and social and political upheaval in 2022. 

With all this, staying focused on the commitment to process accurate and timely pay under continued trying circumstances remains at the top of the to-do lists for payroll professionals in 2022.

PYD

Categories
Payroll Taxes

Fallout From the Payroll Tax Deferrals of 2020

  • Payroll taxes, otherwise known as Social Security taxes, were allowed to be deferred in 2020, to be paid later.
  • The 12.4% Social Security tax rate on wages is split evenly between the employer and the employee, up to a maximum wage base ($137,700 in 2020).
  • Employers were allowed to defer their share of the tax for much of the year; the deferral for employees was only effective from Sept. 1,  2020, through Dec. 31, 2020.
  • There are no payroll tax deferral options in play for 2021.

In March 2020, a provision of the Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allowed employers to defer the deposit and payment of the employer’s share of Social Security taxes from March 27, 2020, through Dec. 31, 2020. 

Later in 2020, President Trump, in an administrative move, declared  that starting Sept. 1, 2020, through the end of 2020, employers were allowed to stop withholding Social Security taxes from employees, effectively deferring the employee’s share of the tax for the last quarter of the year.

These two separate programs allow employers to pay the amounts deferred at different times in the future, depending on whether the deferral was for the employer portion of the tax, or the employee portion.

Employer Payroll Tax Deferral: What's Next

The CARES Act deferral time frame ended Dec. 31, 2020, and the liability to pay the taxes remains. All employers were allowed to take advantage of the deferral, but those that deferred paying the taxes did not have their Social Security tax liability waived. Reporting of the liability on quarterly Forms 941 still was required. The payment of the taxes accrued have only been delayed by this law.  

IRS guidance initially said that half the payment of the deferred employer-portion taxes  (of the total amount actually deferred for the quarter) would be due Dec. 31, 2021, with the other half due Dec. 31, 2022. This has changed. Now, regardless of amounts actually deferred, half of the total amount of the employer portion of the tax still owed for 2020 is due Jan. 3, 2022, with the other half due Jan. 3, 2023.  See IRS FAQs for more details on the continued obligations of employers that deferred their portion of the Social Security tax in 2020.

Employee Payroll Tax Deferral: Changing Options

The deferral of the employee portion of the Social Security tax was announced by President Trump in August 2020, with the plan for it to be effective from Sept. 1, 2020, until the end of the year.  

Almost immediately, many employers announced that they would not or could not make the deferral happen for their employees. The Treasury Department stated that employers would not be forced to defer withholding of employee wages to pay for the tax that would have become due by April 2021 anyway. President Trump indicated the employee portion could be legislated away in early 2021, making the payment of the taxes deferred moot.

There appeared to be too much to change in a short period of time for systems to pivot and put in place a complicated process that involved limiting the deferral to those employees whose biweekly pre-tax compensation generally was less than $4,000.  In addition, it appeared that employers would need to ensure that employees who had the tax deferred, paid the deferred amounts off by the end of April 2021, or would be liable for the taxes, penalties and interest.

Several federal agencies and some, but not many,  private employers stopped withholding on worker Social Security taxes through Dec. 31, 2020. These employers are to withhold, deposit and pay the deferred amounts from Jan. 1, 2021, to Jan. 3, 2022 (Dec. 31, 2021 falls on a public holiday). These amounts are to be withheld and paid in addition to normal Social Security taxes withheld for 2021 for 2021 wages.

Generally, employers that implemented the deferral of employee portion of the Social Security tax are to apportion additional withholding on the employee wages during 2021 so that by Jan. 3, 2022, the deferred tax amounts from 2020 have been completely eliminated.

So far for 2021, there is no indication that there will be other actions to defer Social Security taxes. But payroll professionals know that there always is a possibility this could happen again, in some form, as part of a future economic stimulus package. PYD