In this guest blog post, Susan C Allen, a Senio Director at Ceridian Tax discusses Payroll Tax changes in the US for 2024
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Sponsored By: SAP
- Guest Blogger: Susan C. Allen, CPA, CITP – Ceridian Senior Director, Agency Relationship Management
- Date: December 2023
As we go into our holiday season and begin to think of our New Year’s resolutions, payroll tax professionals are dreaming of a smooth filing season. With quarterly tax forms, annual tax forms, W-2s, 1099s, and Affordable Care Act (ACA) forms all coming due in the next few months, here are some tips to help your year start off bright and cheerful – at least with payroll tax compliance.
2024 payroll tax updates
There is one thing you can count on every year: Complicated and numerous tax law updates. New rules, tax forms, and even new types of taxes are created every year. If your business processes their payroll in-house, you’ll need to update your programs and systems to account for these changes and alert your employees to critical 2024 updates.
Here are five key updates for 2024 that every payroll tax professional should know:
401(k) contribution limit increase
- A 401(k) is an employer-sponsored retirement savings plan that is often part of an employee’s benefit package. Employees may contribute a part of their salary, subject to annual limitations. Employers often match a portion of the employee’s contributions.
- Contributions go into the plan tax free, and withdrawals (typically at retirement age) are usually taxed at the employee’s marginal tax rate.
- The IRS announced an increase in allowable contributions to Sec. 401(k), 403(b), and 457 plans. The maximum contribution level for 2024 is $23,000.
Health Savings Account (HSA) contribution increases
HSAs allow employees to save money to cover health-related expenses. They are valuable tax planning tools. Many tax professionals recommend maximizing contributions to these plans before any other tax-favorable plan (e.g., a 401(k) or profit-sharing plan) because HSAs are “win-win.” With HSAs, an employee can contribute funds tax-free, grow money tax free, and withdraw money tax free. HSAs are often hidden gems for tax planning as they are unique from other tax-favorable plans. For example, with a traditional 401(k), though the funds go in pre-tax, the funds will be taxable when they are distributed.
- For 2024, the annual HSA contribution limits are:
- $4,150 for self-only coverage (up from $3,850 in 2023)
- $8,300 for family coverage (up from $7,750 in 2023)
It is advisable to remind your employees to take advantage of these plans and to confirm what their funds are invested in. At times, employees may have a large HSA that is sitting in a cash account, earning a low interest return. The employee could benefit substantially from moving money to an investment account to earn higher, tax-free, returns.
Social Security wage base increase
The Social Security Administration announced the 2024 Social Security wage base increases to $168,600, up from $160,200 in 2023. Based on the Social Security tax rate of 6.2%, the maximum Social Security tax an employee can pay in 2024 will be $10,453.20 ($168,600 *6.2%).
Medicare taxes will not change in 2024 (remaining at 1.45% for employees and employers). A .9% additional Medicare tax still applies to employees who earn more than $200,000 per year.
Federal income tax bracket changes
The IRS updated its tax brackets for 2024 which can impact tax withholdings for employees.
Single taxpayers |
Tax rate |
2024 tax income bracket |
10% |
$0 to $11,600 |
12% |
$11,601 to $47,150 |
22% |
$47,151 to $100,525 |
24% |
$100,526 to $191,950 |
32% |
$191,951 to $243,725 |
35% |
$243,726 to $609,350 |
37% |
Above $609,350 |
Sources: United States Internal Revenue Service; Ceridian HCM |
Married taxpayers |
Tax rate |
2024 tax income bracket |
10% |
$0 to $23,200 |
12% |
$23,201 to $94,300 |
22% |
$94,301 to $201,050 |
24% |
$201,051 to $383,900 |
32% |
$383,901 to $487,450 |
35% |
$487,451 to $731,200 |
37% |
Above $731,200 |
Sources: United States Internal Revenue Service; Ceridian HCM |
Heads of household taxpayers |
Tax rate |
2024 tax income bracket |
10% |
$0 to $16,550 |
12% |
$16,551 to $63,100 |
22% |
$63,101 to $100,500 |
24% |
$100,501 to $191,950 |
32% |
$191,951 to $243,700 |
35% |
$243,701 to $609,350 |
37% |
Above $609, 351 |
Sources: United States Internal Revenue Service; Ceridian HCM |
Employee retention credit (ERC)
The ERC is a refundable tax credit for organizations that had employees who were impacted during the COVID-19 pandemic. This credit has been a hot topic for both taxpayers and the IRS, as the credit amount is significant and, with the large financial impact, comes scams and fraudulent claims.
The IRS estimates 3.6 million claims of the tax credit thus far and has numerous audits and criminal investigations ongoing.
To curtail challenges with the credit, the IRS recently announced a:
- Moratorium on processing new ERC claims until at least the end of 2023
- New withdrawal process to help organizations that may have filed an ERC and are concerned about the accuracy of the claim. With the IRS’s new withdrawal process, employers can now withdraw their submission and avoid future repayment, interest, and penalties.
May your holidays be bright, your 2024 be healthy and prosperous, and your payroll tax compliance requirements be met with ease.
Ceridian is here to help with your payroll tax compliance strategy and execution. Reduce risk, cut through compliance complexity, and meet critical tax deadlines, learn more today on the SAP Store.
