Tax Alert To All Employers Effective January 1, 2021
Income Tax Withholding
IRS will issue new withholding tables (Publication 15) to reflect changes as of January 1, 2021. When available, the new withholding tables can be obtained at the Internal Revenue website, www.irs.gov.
Social Security (FICA)
The wage base limit for 2021 will increase to $142,800. The Social Security rate will remain at 6.2% for employers & employees. The maximum social security tax deduction for employees is $8,853.60. The 1.45% Medicare rate for employers & employees (a component of the FICA tax) remains unchanged from 2020 and extends to an unlimited wage base. For self-employed individuals, the FICA rate will be 15.3%
Additional Medicare Tax
In addition to the 1.45% Medicare rate, employers must withhold a 0.9% Additional Medicare Tax from wages paid to an employee in excess of $200,000* in a calendar year. The withholding must begin in the pay period in which an employee is paid in excess of $200,000 for the year. The Additional Medicare Tax is imposed on the employee only; there is no employer share of Additional Medicare Tax. *$250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately,
$200,000 for single and all other taxpayers
Pennsylvania Income Tax
The current Pennsylvania Income Tax Rate is 3.07%. The Employer Withholding Tax payment frequency has changed for many employers in 2021.
Pennsylvania Unemployment Tax – Employer’s Share
The Office of UC Tax Services plans to mail the Pennsylvania Unemployment Compensation (UC) Contribution Rate Notices to employers on December 31, 2020.
There is a 5.4 percent Surcharge in effect. The surcharge is factored into the tax rate and appears as the Surcharge Adjustment on the rate notice (Basic Rate + 3 percent Increase for UC delinquency, if applicable, x 5.4 percent = Surcharge Adjustment). This applies to all employers and is not subject to appeal.
There is a 0.50 percent (.0050) Additional Contributions tax in effect. This applies to all employers, except newly liable employers (unless the employer is also subject to an increase for UC delinquency) and is not subject to appeal. This is added to the tax rate after the Surcharge Adjustment is calculated.
Wages subject to Unemployment contributions will remain at $10,000 in 2021.
Pennsylvania Unemployment Tax – Employee’s Share
The employee withholding UC tax rate for 2021 will remain at .06% (.0006). Employee withholding is not limited to the $10,000 taxable wage base; it applies to the total wages paid in 2021.
New Jersey Income Tax
Income tax must be withheld according to the tables which you should have received from the State of New Jersey. The withholding tables can also be obtained at the Division of Taxation website, www.nj.gov/treasury/taxation, under “Withholding Information”.
New Jersey Unemployment Tax
Unemployment and Disability Insurance tax rates are assigned on a fiscal year basis (July 1 – June 30). Every employer receives a “Notice of Employer Rates: (form AC-174.1) at the beginning of each fiscal year.
Wages subject to Unemployment contributions have increased to $36,200 in 2021. Withholding rates are: 003825% Unemployment (UI); 0.47% Temporary Disability Insurance (TDI); .0.000425 Workforce Dev./Supplemental Workforce Funds (SF/SWF); and 0.0028% Family Leave Insurance (FLI). The 2021 TDI/FLI taxable wage base increases to $138,200.
Federal Unemployment Tax
The wage base remains at $7,000. The effective tax rate for 2021 will be .6% (.006) for employers located in Pennsylvania.
City of Philadelphia Wage Tax
The 2021 wage tax rates will remain at 3.8712% for Philadelphia residents and 3.5019% for non-residents working in Philadelphia. Rates will most likely change on July 1, 2021.
City of Philadelphia Earned Income Tax Credit Employer Notice Requirement
The employer must provide the employee or non-payroll worker with the 2020 Earned Income Tax Credit (EITC) Notice form at the same time it provides a W-2, 1099 or comparable form.
All W-2s are due to recipients by 2/1/21. Employer copy of W-2 is due to IRS and states by 2/1/21. When e-filing no W3 is required to be filed with W2s. If paper filing, W-3 is required.
Form W-4 Hit form name for copy.
All employees should complete an updated 2021 Form W-4 to ensure the correct reporting of allowances.
Form W-9 Hit form name for copy.
All unincorporated and self-employed vendors should complete a Form W-9 (Rev. Oct 2018) to ensure proper year end reporting of non-employee compensation, rents, interest, etc. This should be done prior to any work being performed.
Form I-9 Hit form name for copy.
All U.S. employers must ensure proper completion of Form I-9 for each individual they hire for employment in the United States. This includes citizens and noncitizens.
Minimum Wage Rates for 2021:
Minimum wage remains at $7.25 in Pennsylvania; Effective 1/1/21, New Jersey is $12.00 for most workers; Delaware is $9.25.
*NJ seasonal workers and those who work for employers with fewer than six employees increase to $11.10
New Hire Reporting: Hit state name for more info.
Pennsylvania: Employers must report hiring, rehiring, and return to work within 20 days on Form W-4 or Pennsylvania New Hire Form to: Commonwealth of Pennsylvania, New Hire Reporting Program, PO Box 69400, Harrisburg, PA 17106-9400
New Jersey: Employers must report hiring, rehiring, and return to work within 20 days on Form W-4 to:
New Hire Operations Center, PO Box 4654, Trenton, NJ 08650-4654 or website https://www.njcsesp.com
Reporting non-employee compensation of over $600 will change in 2021. Rather than reporting on Box 7 of 1099-MISC form, it will now be reported on 1099-NEC/NonEmployee Compensation form. The due date to IRS and recipient is 2/1/21. When e-filing, no 1096 is required to be filed. If paper filing, a 1096 form is required to be filed.
Some states require a copy of the 1099-NEC if the payer or recipient is located in that state. It is your responsibility to be fully cognizant of your state's requirements.
States which require copy: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Indiana, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Pennsylvania, South Carolina, Vermont, Virginia, Wisconsin.
States that require 1099-NEC filing, only if you withhold taxes: Kentucky, Rhode Island, Utah, West Virginia
States with no 1099-NEC filing requirements: Alaska, Florida, Illinois, Nevada, New Hampshire, North Carolina, New York, South Dakota, Tennessee, Texas, Washington, Wyoming
1099-MISC form will still be used to report rents, royalties, gross proceeds paid to attorney and some other types of compensation.
1099-MISC, 1099-INT, 1099-R, 1099-DIV, 1099-C, 1098 and 1098-T are due to recipients by 2/1/21 and due to IRS by 3/1/21.
WITHHOLD PA INCOME TAX FROM NON-RESIDENT COMPENSATION, BUSINESS INCOME OR CERTAIN LEASE PAYMENTS
Pennsylvania based companies that pay non-employee compensation or business income of $5,000 or above to a non-PA resident or disregarded entity with nonresident members (such as a limited liability company treated as a disregarded entity for federal purposes) must now file a 1099-NEC with the PA Dept. of Revenue and withhold PA income tax (3.07%) from such payments. For amounts under $5,000, this withholding and filing is optional but recommended.
Individual who make lease payments of $5,000 or more on Pennsylvania real estate in the course of trade or business to non-resident lessors must withhold PA income tax (3.07%) from the payment amount. For amounts under $5,000, this withholding and filing is optional but recommended.
For purposes of Act 43, the Dept. of Revenue defines lessors only as individuals, estates and trusts, and characterizes lease payments as rents, royalties, bonus payments, damage rents and other payments made pursuant to a lease.
Please contact us to review your specific tax questions.