Payroll Tax Rates for 2018
Focused on You. Dedicated to Your Success.
January 24, 2018
 
Please note, a correction has been made to the Social Security wage base below.
 
PAYROLL TAX RATES AND UPDATES FOR 2018
 
 
Outlined below are the payroll tax rates and requirements for 2018.
 
The Employment Tax Rates and Wage Base effective January 1, 2018 are as follows:
 
  • Social Security – Both the employer and employee’s contribution rate remain the same at 6.2%. However, the Wage Base increased to $128,400. The maximum amount of Social Security Tax for 2018 that could be withheld from your employee is $7,979.40
 
  • Medicare Tax – The rate remains the same at 1.45% for both the employer and employee’s contribution. The 2018 Wage Base has no ceiling. Wages over $200,000 will be taxed an additional .09%.
 
  • Federal Withholding – Refer to the tables in the Circular “E”. The Circular E is available on the Internal Revenue Service Website – www.irs.gov. The IRS is expected to issue updated 2018 tables reflecting the recent changes in tax law later this month.
 
  • Pennsylvania Withholding – The rate remains the same at 3.07%.
 
  • New Jersey Withholding – Refer to the tax tables.
 
  • Local Taxes for Pennsylvania – For the majority of employees, the tax rates have remained the same. Check with your employee’s to see if their resident rate increased, or check the municipal website at http://munstats.pa.gov/public/Note: On the 2018 W-2s, the name of the locality is the first two digits of the PSD Code of your employee, which is based on the employee’s County. For example, the first two digits for Montgomery County residents is 46.
 
  • Philadelphia Withholding – The Philadelphia tax rate remains the same for January 1, 2018. The rates are as follows:
  • Philadelphia Residents – 3.8907%
  • Philadelphia Non-Residents – 3.4654%
 
Note: Any tax rate change will occur on July 1, 2018.

 
  • Pennsylvania Unemployment Tax – The Wage Base has increased to $10,000 for 2018 and thereafter. The employee deduction for disability insurance has decreased to .06% or $.60 for each $1,000 and has no ceiling. The new employer rate of 2018 will be mailed to you by December 31, 2017 or check the PAUC website.
 
  • New Jersey Unemployment Tax - The Wage Base increased to $33,700. The breakdown of the employee’s rate is as follows: UI rate - .003825, D.I. rate - .0019, S.W.F. rate - .000425, and FLI rate - .0009.
 
  • Local Services Tax for Pennsylvania – Most municipalities impose a Local Services Tax or an Occupational Privilege Tax, which can range from $10 to $52 per year. For amounts over $10, the tax is prorated over the number of pay periods in the year. Check with your local municipality for the amount of the tax, or check the municipal website cited above.
 
·          Federal Unemployment Tax – The Wage Base of $7,000 remains the same. The current tax rate is 6% on the first $7,000 of wages you pay an employee. Employers typically receive a credit of 5.4% on Form 940 reducing the FUTA rate to .6% or a maximum amount of $42 per employee per year. 
 
  • Qualified Pension Plan Contribution Limits – The deferral limits for employer-sponsored tax-deferred retirement plans for 2018 and 2017 are as follows:
                                           2018             2017
401(k)                          $18,500         $18,000         
401(k) “catch up limit”     $24,500        $24,000         
401(k) Simple                     $12,500         $12,500
401(k) Simple “catch up limit” $15,500         $15,500
           
An employee is eligible to make “catch up” contributions if the employee is otherwise eligible to make elective deferrals under the plan, and is age 50 or older on December 31st. A participant who is projected to attain age 50 before the end of the calendar year is deemed to be age 50 as of January 1 of that year. This is an optional provision that first must be elected by the pension plan sponsor.
 
 
  • New Contribution Limits for Health Savings Accounts: The 2018 annual contribution limit that individuals with single medical coverage can contribute to a health savings account is $3,450, an increase of $50 from 2017. The annual contribution limit for those covered under qualifying family medical plans is $6,900, up from $6,750 in 2017.

  • Hiring New Employees
  1. Verify that each new employee is legally eligible to work in the United States.                                                                                             
  2. Each new employee must fill in Form W-4 and Form I-9, Employment Eligibility Verification Form. Form W-4 can be obtained on the IRS website:www.irs.gov. Form I-9 can be obtained at www.uscis.gov, go to the Forms tab, and select Form I-9.
  3. Report all new employees to your state’s New Hire Registry within 20 days of the hiring date. The link for PA employers is http://www.panewhires.com. Multistate employers must file on-line.
 
  • Form W-2 & Form 1099 Before the forms are finalized for the year, verify the spelling of your employee/subcontractor’s name and also verify their social security or employer identification number. The Internal Revenue Service may fine $50 for every W-2 and Form 1099 with incorrect information. The due date for filing Forms W-3/W-2 and Forms 1096/1099 is January 31, 2018.

  •  Mileage Allowance Beginning on January 1, 2018, the standard mileage rate for the use of a vehicle increased to 54.5 cents for every mile of business travel driven, up 1 cent from the rate of 53.5 cents per mile in 2017.
 
 
If you have any questions on the above, please contact our office.

As always, we are here to help you to take advantage of new market opportunities. Feel free to contact us at 610.828.1900. You can contact us at Marty.McCarthy@MCC-CPAs.com .
Martin C. McCarthy, CPA, CCIFP
Managing Partner
McCarthy & Company, PC

Disclaimer This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).