SOCIAL SECURITY WAGE BASE
Wages are taxed up to $128,400 for FICA in year 2018. The 2018 rates for FICA (6.2%) and Medicare (1.45%) remain unchanged from 2017.
FUNDING 2018 RETIREMENT PLANS
Funding limits for employee payroll contributions to various types of “qualified” retirement plans during 2018 are as follows:
Type of Regular Additional
Plan Amount “Catch-up”
401K, 403b annuity and 457 govt. $18,500 + $6,000
SIMPLE-IRA $12,500 + $3,000
*An employee must be at least age 50 by 12/31/18 to contribute the “catch-up” contributions.
NOTE – The maximum compensation which can be “counted” for defined contribution retirement plans is $275,000 for 2018 (which produces a funding “cap” of $55,000 in 2018).
HEALTH SAVINGS ACCOUNTS
The 2018 annual funding limits to health savings accounts (HSA’s) are $3,450 for self-only and $6,900 for family. Employees age 55 – 65 can fund additional “catch-up” amounts of $1,000 to HSA’s (to $4,450 for self-only and $7,900 for family HSA accounts).
These 2018 annual funding limits are the combined contribution amounts between employee and employer funding.
NOTE — It is always smart to include employee HSA contributions as an “includable benefit” in a written Section 125 cafeteria plan document, in order to save FICA/Medicare taxes.
FLEXIBLE SPENDING ACCOUNTS
The maximum amount an employee can contribute to a health flexible spending account (FSA) during 2018 is $2,650.Contributions to “dependent care” FSA accounts (for childcare) are limited to $5,000 in 2018 (OR $2,500 if “married filing separately” as your tax filing status.)
NOTE – Make sure you have a written Section 125 plan document if you sponsor FSA’s.
An employer may reimburse or directly pay employees for up to $260 per month during 2018 for parking as a non-taxable fringe benefit. The parking must be job-related and on or near the employer’s business location.
NOTE — “Downtown” employers may want to consider providing non-taxable parking benefits in lieu of taxable employee wages.
The IRS just released the “cents per mile” business mileage tax deduction for 2018 increasing the rate by a penny from 2017 to 54.5 cents per business mile in 2018.
An employer may choose to reimburse employees at the IRS rate for business miles driven on their personal vehicle, without the reimbursement being reported as taxable wages to the employee. Reimbursements above the IRS mileage rate must be treated as taxable wages.
NOTE — An employer is not required to use the IRS mileage rate for employee reimbursements, and therefore can reimburse more (taxable on excess) or less than the IRS rate.
HOW MUCH CAN STUDENTS EARN IN 2018?
Students/children of business owners could earn up to $6,350 in wages during 2017 without paying any Federal income tax. As always, the wages paid to the owner’s children/grandchildren must be reasonable amounts based on the actual work completed. Maintain records to prove that wages paid to family members are “reasonable”.
Note – The amount a student can earn during 2018 without paying federal income tax is uncertain due to PENDING TAX LEGISLATION FOR YEAR 2018. Both the House and Senate versions of tax reform eliminate “exemptions” (W-4 allowances) in favor of an increase in a taxpayer’s “standard deduction”.
New tax legislation could be enacted during the next 2 weeks, which could dramatically change payroll withholding tax tables. Specifically, an employee W-4 requests the number of exemptions/allowances which taxpayers claim for withholding purposes. These W-4 “allowances” could be eliminated and replaced with higher standard deductions and lower tax rates.
Call one of AccuPay’s CPP/CPA teams at 317-885-7600 with questions about your payroll or suggestions about how we can serve you better during 2018!