What rates and changes to expect in the new year
PAYROLL TAX RATES AND UPDATES FOR 2017
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The Employment Tax Rates and Wage Base effective January 1, 2017 

  • Social Security – Both the employer and employee’s contribution rate remain the same at 6.2%.  However, the Wage Base increased to $127,200.

  • Medicare Tax – The rate remains the same at 1.45% for both the employer and employee’s contribution.  The 2017 Wage Base has no ceiling.
  • Federal Withholding – Refer to the tables in the Circular “E”.  The Circular E is available on the Internal Revenue Service Website – www.irs.gov.
  • Pennsylvania Withholding – The rate remains the same at 3.07%.
  • New Jersey Withholding – Refer to the tax tables.
  • Local Taxes – 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://munstatspa.dced.state.pa.us.  Note:  On the 2016 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. Eg.  The first two digits for Montgomery County residents is 46.
  • Philadelphia Withholding – The Philadelphia tax rate remains the same for January 1, 2017.  The rates are as follows:  Philadelphia Residents 3.9004%;  Philadelphia Non-Residents 3.4741%

      Note:  Any tax rate change will occur on July 1, 2017.
      • Pennsylvania Unemployment Tax – The Wage Base has increased to  $9,750 for 2017.  The employee deduction for disability insurance remains at .07% or $.70 for each $1,000 and has no ceiling. 

        • New Jersey Unemployment Tax - The Wage Base increased to $33,500.  The breakdown of the employee’s rate is as follows: UI rate - .003825, D.I. rate - .0024, W.F. rate - .000425, and FLI rate - .001.

          • Local Services Tax – 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 tax rate is .6% to be paid with the Form 940 at the end of the year. 

            • Mileage Allowance - Business:  2016 - 54 cents/mile and 2017 – 53.5 cents/mile

            • Qualified Pension Plan Contribution Limits – The deferral limits for employer-sponsored tax-deferred retirement plans for 2017 and 2016 are as follows
                                                                                          2017              2016

                          401(k)                                                         $18,000          $18,000         

                          401(k) “catch up limit”                          $24,000          $24,000         

                         401(k) Simple                                           $12,500          $12,500

                          401(k) Simple “catch up limit”           $15,500          $15,500

                          408(k) SEP                                                $18,500          $18,000

                          408(k) SEP “catch up limit”                 $24,000           $24,000

                          408(p) SIMPLE                                        $12,500          $12,500

                          408(p) 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.

            • 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.

            3.     Report any new employee to your state’s New Hire Registry within 20 days of the hiring date. The    
                  New Hire Reporting Form for your state can be obtained at www.sba.gov, then select your state.  The
                   link for PA employers is http://www.panewhires.com .
            • 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.  Starting in  2017, the due date for filing Forms W-3/W-2 and Forms 1096/1099 is January 31, 2017.
            Please feel free to contact our office at 610-828-1900, or by email at info@mcc-cpas.com with any questions.

            Disclaimer: This article 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).                                                                   
            Martin C. McCarthy, CPA
            Managing Partner
            McCarthy & Company, PC
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