Key 2018 business payroll information
Posted on January 12, 2018
2018 is most definitely a year of change when it comes to what businesses need to know and do to stay in compliance with the IRS.
Here’s what’s changed regarding payroll, wages and retirement plans, according to the CPA watchdogs at Teipen Selanders Poynter & Ayres:
- Social Security wage base
Wages are taxed up to $128,400 for FICA in 2018. The 2018 rates for FICA (6.2%) and Medicare (1.45%) remain unchanged from 2017.
- Employee Payroll retirement contributions
Funding limits for employee* payroll contributions to various types of “qualified” retirement plans are now:
401, 403b and 457 $18,500 + $6,000
SIMPLE – IRA $12,500 + $3,000
* (An employee must be at least age 50 by 12/31/18 to contribute to “catch up” contributions.)
Businesses and employees should note that the maximum compensation which can be counted for defined contribution retirement plans by the IRS is $275,000 this year (which produces a funding “cap” of $55,000 in 2018).
- Health Savings Accounts
IRS stipulated 2018 annual funding limits to health savings accounts (HSAs) are now $3,450 for self-only; $6,900 for family.
Employees age 55 through 65 may fund additional “catch-up” amounts of $1,000 to HSAs ($4,450 for self-only and $7,900 for family HSA accounts).
Businesses should note that these 2018 annual funding limits are the combined contribution amounts between employee and employer funding.
Teipen Selanders Poynter & Ayres CPAs recommend their business clients include employee HSA contributions as an “includable benefit” in a written Section 125 cafeteria plan document in order to save FICA/Medicare taxes.
- Flexible spending accounts
The maximum amount an employee can contribute to a health flexible spending account (FSA) during 2018 is $2,650. Contributions to Dependent Care (childcare) FSA accounts are limited to $5,000 in 2018 (or $2,500 if married filing separately).
Again, TSPA recommends that you make sure you have a written Section 125 plan document if you sponsor FSAs.
- Students/children of business owners
Students may earn up to $6,350 in wages during 2018 without paying any Federal income tax. As always, the wages paid to an owner’s children/grandchildren must be reasonable amounts based on the actual work completed. TSPA CPAs recommend that businesses maintain accurate records to prove that wages paid to family members are “reasonable”.
Teipen Selanders Poynter & Ayres CPAs have already logged hundreds of hours studying what’s changed and what hasn’t for 2018, according to the IRS and the new tax code.
If you aren’t sure that what your organization is doing is correct, contact us. We can keep you and your business in good stead.