As we reach the end of 2019, the IRS and individual states are publishing changes to their taxable wage bases for 2020.
What is a wage base?
A taxable wage base limit is the amount of wages that are subject to a tax in a given time period, typically a year.
2020 State Wage Base Changes
Fourteen states may have wage base changes for 2020 because they adjust wage bases to be a percentage of their state average annual wage. These states are Alaska, Hawaii, Idaho, Iowa, Minnesota, Montana, Nevada, New Mexico, North Carolina, North Dakota, Oregon, Rhode Island, Washington, and Wyoming . Utah adjusts its wage base to be a percentage of its state average wage from July 1 to June 30. Colorado and New Jersey determine wage base adjustments using the state average weekly wage.
Washington may in 2020 become the first state to have an unemployment taxable wage base exceeding $50,000. The wage base for 2020 is to be 80 percent of the annual state average weekly wage for 2018, so a wage base of at least $50,000 may be triggered if the average weekly wage is calculated to be at least $62,500. The wage base for 2019 is $49,800, and the applicable average weekly wage was $61,887.
Upcoming 2020 Federal Wage Base Changes
The IRS has published that the 2020 Social Security wage base limit will be $137,700. The maximum 2020 OASDI portion of the Federal Insurance Contribution Act (FICA) payable by each employee is increasing to $8,537.40 or 6.2% of the wage base. Employers match the employee amount with an equal contribution. The 2020 Medicare wage base limit remains unchanged at no limit. The Medicare tax rate remains at 1.45% and is applicable to all wages paid during the year. An additional 0.9% in Medicare taxes applies to individuals with annual earned income of more than $200,000, and $250,000 for married couples filing jointly.
2020 State Unemployment Insurance (SUI) Wage Base Changes
Most states have released their state unemployment insurance (SUI) taxable wage bases for 2020. The state governments are saying that employers should be aware that due to unemployment insurance trust fund balances that are lower (or higher) than anticipated and economic concerns regarding employer taxes, some states may make changes to their taxable wage bases later this year or early next year.
State unemployment insurance taxes are based on a percentage of the taxable wages an employer pays.
The Federal Unemployment Tax Act (FUTA) requires that each state's taxable wage base must at least equal the FUTA wage base of $7,000 per employee, although most states' wage bases exceed the required amount.
Some states apply various formulas to determine the taxable wage base, others use a percentage of the state's average annual wage, and many simply follow the FUTA wage base.
PaycheckCity will continue to update wage bases and tax rates on our payroll tax pages as information becomes available.
These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.