January 2017 will bring tax management changes to everyone’s payroll system with the new FICA rules that were announced by the Social Security Administration this past October. FICA taxable wages will see an increase from $118,500 to $127,200, which will affect millions of workers as well as payroll services for organizations nationwide.
Key 2017 Payroll Changes for Labor Ready W2 Management
The social security portion of FICA or old age, survivor and disability insurance is what is affected—where 6.2% of taxable income is withheld and matched by employers. The maximum tax an individual can pay is now $7,886.40. Based on inflation, social security beneficiaries and retirees will see a slight cost of living increase in their payments, which may have been factored into these payroll changes in 2017 in addition to overall wage growth numbers.
Wage rules for the Medicare portion of FICA remain the same. The combined tax rate for employee and employer FICA remains at 7.65% respectively. These rates will not need to be changed in your payroll system at the end of 2016.
Organizations are tasked with the responsibility of making sure their payroll software applies the taxable wage changes. They should also communicate these 2017 payroll changes with their workforce, as those affected will see an alteration in their take-home pay.
Employers that outsource their payroll and tax management functions rely on their vendor for withholding and remittance. When combined with a total payroll solution, the federally mandated tax changes become part of their service agreement.
The Importance of a Payroll System Provider for W2 Management
Many employers are tasked with managing multiple FEINs in addition to multiple state and local tax jurisdictions. Having a payroll system provider that will deliver all federal, state and local tax updates automatically eliminates the hassle as well as potential fines for noncompliance. Payroll vendors have been aware of the potential 2017 FICA changes for a while, and since the final changes have been announced, they’re working to apply these payroll software changes across the board for all customers.
Updated: Labor Ready W-2 Filing Deadline
October 2016 also saw the IRS announcement for the new January 31 filing deadline for W-2 forms. The provision was part of last December’s Protecting Americans from Tax Hikes (PATH) Act. Employer filings of Form W-2 must now be submitted to the Social Security Administration by January 31—a change from the previous end-of-February guideline for paper filings and end-of-March guideline for electronic filings. Extensions are not automatic and are now given for a 30-day period only.
Quicker Tax Refunds for Employees
The motivation behind these changes is to ultimately help tax payers receive their refunds quicker. By receiving labor ready W-2 forms earlier from employers, the IRS is hoping to locate errors on returns more quickly, accelerating the tax return process. The new PATH changes will result in some refunds being issued later—February 15th to be exact—particularly tax returns involving Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC). The entire refund must be held until this date by law.
With ever-changing rules and regulations surrounding taxes, employers want the security that comes from third-party payroll providers who ensure that all federal-mandated changes will be handled automatically whether they affect tax rates, wage caps or required tax forms for compliance with IRS rules. The 2017 FICA and W-2 changes are a great example of items that are handled seamlessly once you decide to outsource.
Let EPAY Systems help you manage the complex payroll and tax management processes. Get a live demonstration of our human capital management system, which helps you drive workforce efficiencies, reduce wage and administrative costs and improve labor compliance.