Employer Guide to 2021 Tax Withholding Changes
— Overview —
As an annual service to our members, NJBIA explains the changes in tax withholding rates and taxable wage bases that employers face in the year ahead. Outside of payroll taxes, it is important to note that legislation signed into law in 2020 reinstated the 2.5% corporate business tax surtax originally imposed in the 2018 state tax law changes. The 2.5% surcharge had been scheduled to be lowered to 1.5% for the 2020 tax year.
It is also important to be aware that the high unemployment resulting from the pandemic will probably lead to an unemployment insurance payroll tax increase for employers in July of 2021, in addition to the employee change below. The exact employer rate increase has not been determined yet and will depend on potential state and federal responses.
— Unemployment Insurance & New Jersey Workforce Development Taxes —
Employee and employer state Unemployment Insurance and Workforce Development/Supplemental Workforce Funds tax rates will apply to the first $36,200 of an employee’s earnings in 2021 (up from $35,300 in 2020).
For 2021, employees are subject to a 0.0425% (.000425) Workforce Development/Supplemental Workforce Funds tax rate – the same as 2020. The employee Unemployment Insurance tax rate remains at 0.3825% (.003825) of taxable payroll.
— New Jersey Temporary Disability (TDI) & Family Leave Insurance (FLI) Taxes —
The 2021 TDI and FLI Taxable Wage base for employees-only is $138,200 – up from 2020’s $134,900. The TDI Taxable Wage Base for employers-only is $36,200 – a slight increase from 2020’s $35,300.
The 2021 disability tax rate for employees rises to 0.47% of taxable wages, up from 0.26%.
The tax rate for existing employers for the state plan is based on each employer’s claims experience.
Family Leave Insurance tax rate for employees rises to 0.28% of taxable wages, up from 0.16% in 2020.
— Explanation of Federal Unemployment Tax Act (FUTA) —
FUTA is a tax that employers pay to the federal government to help states pay for unemployment benefits. Due to actions taken in 2013 to stabilize the state Unemployment Insurance Trust Fund and repay federal loans, New Jersey employers will pay a FUTA tax rate of only 0.6% on the first $7,000 of an employee’s wages in 2021.
— FICA and Medicare —
The Social Security portion of the FICA tax that both employers and employees pay remains unchanged at 12.4% (6.2% each). The maximum amount of earnings subject to the Social Security payroll tax will increase to $142,800, up from the 2020 amount of $137,700.
Most Americans will pay a 2.9% Medicare FICA tax, which is split evenly between employees and employers (1.45% each). However, it should be noted that unlike the Social Security FICA tax, there is no limit on the amount of wages subject to the Medicare portion of the tax.
The Affordable Care Act imposed an additional tax of 0.9% on the employee-paid portion of the Medicare FICA tax for high-wage earners. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for single and all other taxpayers. While the additional Medicare tax for the individual wage earner’s portion on compensation will rise to 2.35% (1.45% plus 0.9%), the employer-paid portion of the Medicare tax on these amounts remains at 1.45%.
Self-employed individuals are responsible for the entire FICA tax rate of 15.3% on the first $142,800 of self-employment income. They are also responsible for the 2.9% Medicare FICA tax on income above $142,800, as well as the additional 0.9% Medicare tax established under the ACA if income meets the aforementioned “high wage earner” thresholds.
NOTE: Employers are advised to check with the IRS regarding information on federal income tax withholdings. Information can be found at http://www.IRS.gov.
— Employee Benefits Increase in 2021 —
Employee maximum weekly benefits for Workers’ Compensation, Unemployment Compensation, and Temporary Disability are adjusted annually to reflect increases in average taxable wages of covered employees. Amounts applicable in 2021 are set forth below:
— New Jersey Unemployment Insurance —
The 2021 Maximum Unemployment Insurance weekly benefits rate is $731 (up from $713 in 2020).
— Temporary Disability & Family Leave Insurance —
The 2021 Maximum TDI weekly benefit rate is $903 (up from $881 in the second half of 2020 and $650 in the first half of 2020).
— Workers’ Compensation —
The 2021 Maximum Workers’ Compensation weekly benefit rate is $969 (up from $945 in 2020).
— For More Information —
If you need additional information, please contact NJBIA’s Member Action Center at 1-800-499-4419, ext. 3 or member411@njbia.org.
This information should not be construed as constituting specific legal advice. It is intended to provide general information about this subject and general compliance strategies. For specific legal advice, NJBIA strongly recommends members consult with their attorney.
