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 on January 1, 2020, the current corporate business tax surtax imposed in the 2018 state tax changes declines from 2.5% to 1.5%.
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 $35,300 of an employee’s earnings in 2020 (up from $34,400 in 2019).
- For 2020, employees are subject to a 0.0425% (.000425) Workforce Development/Supplemental Workforce Funds tax rate – the same as 2019. 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 2020 TDI and FLI Taxable Wage base for employees-only is $134,900 – a significant increase from 2019’s $34,400 due to legislated expansion in 2019. The TDI Taxable Wage Base for employers-only is $35,300 – a slight increase from 2019’s $34,400.
- The 2020 disability tax rate for employees rises to 0.26% of taxable wages, up from 0.17%
- 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 0.16% of taxable wages, up from 0.08% in 2018.
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 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 2020.
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 $137,700, up from the 2019 amount of $132,900.
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 $137,700 of self-employment income. They are also responsible for the 2.9% Medicare FICA tax on income above $137,700, 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 www.IRS.gov. Employers are also advised to check with the IRS on the new 2020 W-4 form for employees. There were many changes from the 2019 version that were designed to help employees comply with the recent federal Tax Cuts and Jobs Act of 2017.
Employee Benefits Increase in 2020
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 2020 are set forth below:
New Jersey Unemployment Insurance
- Maximum benefit for benefit years commencing on or after January 1, 2020: $713 weekly (up from $696).
Temporary Disability & Family Leave Insurance
- The 2020 Maximum TDI weekly benefit rate is $667 for the first half of 2020, and then on July 1 it increases to $881. Last year the maximum was $650.
- The 2020 Maximum Workers’ Compensation weekly benefit rate is $945 (up from $921 in 2019).
If you need additional assistance, please contact Christopher Emigholz at email@example.com or 609-858-9512.