What's new and what to consider when filing in 2023.
Income Tax Withholding
IRS will issue new withholding tables (Publication 15) to reflect changes as of January 1, 2023. 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 2023 will increase to $160,200. The Social Security rate will remain at 6.2% for employers & employees. The maximum social security tax deduction for employees is $9,932.40. The 1.45% Medicare rate for employers & employees (a component of the FICA tax) remains unchanged from 2022 and extends to an unlimited wage base. For self-employed individuals, the FICA rate will remain at 12.4% for Social Security and 2.9% for Medicare.
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 the Additional Medicare Tax.
*$250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for single and all other taxpayers.
Pennsylvania Income Tax
The Pennsylvania Income Tax Rate will remain at 3.07%.
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, 2022. Wages subject to Unemployment contributions will remain at $10,000 in 2023.
Pennsylvania Unemployment Tax – Employee’s Share
The employee withholding UC tax rate for 2023 is .07% (.0007). Employee withholding is not limited to the $10,000 taxable wage base; it applies to the total wages paid in 2023.
New Jersey Income Tax
Income tax must be withheld according to the tables 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 $39,800 in 2022 and will increase to $41,110 for the 2023 fiscal year. Withholding rates are 003825% Unemployment (UI); 0.00% Temporary Disability Insurance (TDI); .0.000425 Workforce Dev./Supplemental Workforce Funds (SF/SWF); and 0.0006% Family Leave Insurance (FLI). The 2023 TDI/FLI taxable wage base increases to $156,800.
Federal Unemployment Tax
The wage base remains at $7,000. The effective tax rate for 2023 will be 0.6% (.006) for employers located in Pennsylvania.
City of Philadelphia Wage Tax
The 2023 wage tax rates will remain at 3.79% for Philadelphia residents and 3.44% for non-residents working in Philadelphia. Starting in 2023, you must complete returns and payments for wage tax electronically on the Philadelphia Tax Center. Philadelphia will only accept paper returns and checks for this tax until the end of 2022. Philadelphia has an online tax center guide to assist you.
City of Philadelphia Earned Income Tax Credit Employer Notice Requirement
The employer must provide the employee or non-payroll worker with the 2022 Earned Income Tax Credit (EITC) Notice form while providing a W-2, 1099 or comparable form. You can locate a copy of this form here.
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 before any work is performed.
All US employers must ensure proper completion of Form I-9 for everyone they hire for employment in the United States. This includes citizens and noncitizens.
Minimum Wage Rates for 2023
The minimum wage remains at $7.25 in Pennsylvania, Effective 1/1/23; New Jersey is $14.13 for most workers; Delaware is $11.75.
*NJ seasonal workers and those who work for employers with fewer than six employees will increase to $12.93.
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.
It is crucial to have the vendor/contractor complete a W-9 form and provide it to you. This will ensure you are using the correct name, address and EIN/SSN; for businesses, it will also help to determine whether you need to issue a 1099 to them. Starting January 1, 2023, the IRS will have developed an internet portal allowing taxpayers to file 1099 forms electronically.
Businesses file Form 1099-NEC for each person during the payer’s business to whom they paid at least $600 during the year. This payment would have been for services performed by a person or company who IS NOT the payor’s employee.
Other payments over $600 that a payer makes during the payer’s business for things such as rent, prizes, awards, or “other income payments” are reported on Form 1099-MISC.
The American Rescue Plan Act of 2021 defined new Form 1099-K usage for third-party payment platforms. Starting in 2022, the reporting threshold changed to $600 with no transaction minimum. This threshold applies to independent contractors and payment settlement entities. The Internal Revenue Service reminds taxpayers earning income from selling goods and/or providing services that they may receive Form 1099-K, Payment Card and Third-Party Network Transactions for payment card transactions and third-party payment network transactions of more than $600 for the year.