The IRS has announced the changes to the dollar limits on benefits and contributions under qualified retirement plans, as well as other items, for tax year 2020 [IRS Notice 2019-59, 11-6-19]. In addition, the IRS also released inflation-adjusted tables for 2020 reflecting any increases in the flexible spending arrangement (FSA) deferral limit and excludable transportation fringes, among other changes [Rev. Proc. 2019-44, 11-6-19].
Pension Plan Limits
IRC §415, which provides for dollar limits on benefits and contributions under qualified retirement plans, also requires that the IRS annually adjust these limits for cost-of-living changes. The IRC also requires various other amounts to be adjusted at the same time and in the same manner as these dollar limits.
The limitation on the exclusion for elective deferrals under §401(k), §403(b), and §457(b) plans increases to $19,500 for 2020 (from $19,000).
COLAs for FSA Deferrals, Transportation Fringes, and More
For plan years beginning in 2020, the dollar limitation for voluntary employee salary reductions for contributions to health FSAs increases to $2,750 (from $2,700 in 2019). For 2020, the amounts that may be excluded from gross income for employer-provided qualified transportation fringe benefits and qualified parking have both increased to $270 per month (from $265 in 2019).
U.S. Citizenship and Immigration Services (USCIS) announced it will allow the public an additional 30 days to comment on its proposal to extend the current version of Form I-9, Employment Eligibility Verification[84 F.R. 26140, 6-5-19].
The comment period now ends on July 5, 2019. Comments can be emailed to firstname.lastname@example.org with OMB Control Number 1615-0047 in the subject line.
The current version of Form I-9 expires on August 31, 2019. USCIS is reviewing comments it has already received. Depending on the extensiveness of the comments, USCIS may keep in place the existing Form I-9 past the August deadline, according to a statement made to APA’s Government Relations team. Otherwise, USCIS will keep the form as is or make changes based on the comments received.
USCIS will update I-9 Central if there are any changes. Employers should continue to use the July 17, 2017, Form I-9 until a decision is made.
First-of-its-kind state legislation that would regulate on-demand pay continues to gain steam in the California Legislature (S.B. 472). The state Senate has already passed the bill and it has been referred to the Assembly Committees on Banking and Finance and Judiciary. On July 8, the Assembly Committee on Banking and Finance is scheduled to hold a hearing on S.B. 472. The Assembly would still need to pass the bill and the governor would need to sign it before it becomes law.
Most of the bill’s provisions would regulate providers of on-demand pay, although certain requirements would apply to employers. On-demand pay gives employees immediate access to a portion of the pay they have already earned during a pay period, in advance of regular payroll. Because the employee has already earned the income, the on-demand payments would not be considered credit transactions under California law Courtesy of APA
Federal tax reform continues to be a hot topic as many changes made by the Tax Cuts and Jobs Act (TCJA; Pub. L. 115-97) continue to impact payroll professionals. Although most of the changes in the TCJA took effect January 1, 2018, they will remain in effect through 2025.
Tax Rates and Brackets The TCJA retains seven tax brackets, but adjusts tax rates and taxable income levels. The tax rates are also used to determine supplemental and backup withholding rates, so those rates also change. Here is a comparison of 2017, 2018, and 2019 rates.
2017 Tax Rate
2018 Tax Rate
2019 Tax Rate
$0 – $9,525
$0 – $9,700
$9,326 – $37,950
$9,526 – $38,700
$9,701 – $39,475
$37,951 – $91,900
$38,701 – $82,500
$39,476 – $84,200
$91,901 – $191,650
$82,501 – $157,500
$84,201 – $160,725
$191,651 – $416,700
$157,501 – $200,000
$160,726 – $204,100
$416,701 – $418,400
$200,001 – $500,000
$204,101 – $510,300
Married, Filing Jointly
2017 Tax Rate
2018 Tax Rate
2019 Tax Rate
$0 – $18,650
$0 – $19,050
$0 – $19,400
$18,651 – $75,900
$19,051 – $77,400
$19,401 – $78,950
$75,901 – $153,100
$77,401 – $165,000
$78,951 – $168,400
$153,101 – $233,350
$165,001 – $315,000
$168,401 – $321,450
$233,351 – $416,700
$315,001 – $400,000
$321,451 – $408,200
$416,701 – $470,700
$400,001 – $600,000
$408,201 – $612,350
Rates for Withholding on Supplemental Wages for 2018 There is a two-tiered system for withholding income tax from supplemental wages at a flat rate:
Optional flat rate: 22%. The TCJA lowers the optional flat tax rate on supplemental wages of up to $1 million in a taxable year to 22% (no other percentage is allowed).
Mandatory flat rate: 37%. The TCJA lowers the mandatory withholding rate on supplemental wages exceeding $1 million in a taxable year to 37% for tax years 2018 through 2025.
Backup Withholding Rate The TCJA lowers the backup withholding rate to 24% for tax years 2018 through 2025.
Personal Exemption Elimination and Income Tax Withholding The TCJA eliminates the personal exemption claimed by taxpayers for themselves and their spouse and dependents for 2018-2025. For 2019, the standard deduction is $24,400 for married individuals filing jointly, $18,350 for head-of-household filers, and $12,200 for all others.
Withholding Allowance The 2019 amount for one withholding allowance on an annual basis is $4,200.
Federal Tax Levies The IRS has revised Publication 1494, Tables for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income, and issued new Notice 1439, which updates the instructions for levy notices (Form 668-W).
IRS Tax Reform Implementation Office The IRS has created the Tax Reform Implementation Office (TRIO) to develop a plan to implement the TCJA. The IRS must reprogram 140 systems and over 460 IRS forms, instructions, and publications will be created or revised.
Other Areas Important to Payroll The TCJA also affects other areas important to payroll professionals, including: the suspension of the fringe benefit for moving expenses (except for certain military-related moves); a new employer tax credit for paid family and medical leave; and how states are reacting to the TCJA. States may revise their employee withholding allowance certificates or change which version of the Internal Revenue Code they follow.
On December 18, the IRS released the 2019 Publication 15, Circular E, Employer’s Tax Guide, and the 2019 Publication 1494, Tables for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income. https://www.irs.gov/pub/irs-pdf/p15.pdf
Publication 15 includes the 2019 wage bracket and percentage-method withholding tables. It also sets the amount for one withholding allowance at $4,200 (up from $4,150 in 2018). Publication 15 reminds employers that the IRS extended the deadline for employees who have a change of status “solely due to the changes made by the TCJA [Tax Cuts and Jobs Act]” to furnish a new Form W-4, Employee’s Withholding Allowance Certificate, to their employers until May 10, 2019.
Publication 1494 provides tables showing the amount of an individual’s wages that is exempt from a Notice of Levy used to collect delinquent federal income tax in 2019. As in 2018, the publication contains a column for zero dependents to reflect changes made by the TCJA.
The IRS has released Notice 1036, Early Release Copies of the 2019 Percentage Method Tables for Income Tax Withholding(rev. 12-18). The tables included in Notice 1036, along with the 2019 wage-bracket withholding tables, will appear in IRS Publication 15, (Circular E), Employer’s Tax Guide.
The IRS also released the 2019 Form W-4, Employee’s Withholding Allowance Certificate. The 2019 Form W-4 is very similar to the 2018 Form W-4.
The IRS announced that the business standard mileage rate for transportation expenses paid or incurred beginning January 1, 2019, will be 58 cents per mile up, 3.5 cents from the 54.5 cents-per-mile rate in effect during 2018 [Notice 2019-02, released 12-14-18].
The mileage rate may be used to compute the amount to reimburse employees who are using their own cars for business purposes. It may also be used by employers that elect to use the “cents-per-mile” valuation method for purposes of determining the amount that needs to be imputed to an employee’s income for personal use of certain company-owned or leased nonluxury vehicles. However, it may not be used by employees in claiming a tax deduction for unreimbursed employee business expenses.
Due to a lapse in government funding, E-Verify and E-Verify services are not available [E-Verify website, 12-22-18]. During this time, employers cannot access their E-Verify accounts to enroll in E-Verify; create E-verify cases; view or take action on cases; reset passwords; terminate accounts; or run reports.
Policies During the Shutdown
While E-Verify is unavailable, employees will not be able to resolve any tentative nonconfirmations (TNCs). U.S. Citizenship and Immigration Services (USCIS) suspended the “three-day rule” for creating E-Verify cases and extended the time period during which employees may resolve TNCs. The number of days E-Verify is not available will not count toward the days employees have to begin the process of resolving their TNCs.
When operations resume, USCIS will issue additional guidance. In the meantime, employers may not take adverse action against an employee whose E-Verify case is in an interim status.
Form I-9 Requirements Still in Effect
The lapse in government appropriations does not affect Form I-9, Employment Eligibility Verification, requirements. Employers must still complete Form I-9 no later than the third business day after an employee starts work for pay and comply with all other Form I-9 requirements.