SOCIAL SECURITY WAGE BASE
Wages will be taxed up to $147,000 for FICA in year 2022. The 2022 rates for FICA (6.2%) and Medicare (1.45%) remain unchanged.
FUNDING 2022 RETIREMENT PLANS
Few changes were made to retirement plan funding for 2022. Funding limits for employee payroll contributions to various types of “qualified” retirement plans during 2022 are as follows:
- 401k, 403b, 457 govt. plans – maximum employee elective deferral of $20,500 with additional catch-up of $6,500 for employees 50 and over
- SIMPLE IRA – maximum employee elective deferral of $14,000 with additional catch-up of $3,000 for employees 50 and over
*An employee must be at least age 50 by 12/31/22 to contribute the “catch-up” contributions.
NOTE – The maximum compensation which can be “counted” for defined contribution retirement plans is $305,000 for 2022 (which produces a funding “cap” of $61,000 in 2022).
HEALTH SAVINGS ACCOUNTS
The 2022 annual funding limits to health savings accounts (HSA’s) are $3,650 for self-only and $7,300 for family. Employees age 55 – 65 can fund additional “catch-up” amounts of $1,000 to HSA’s (to $4,650 for self-only and $8,300 for family HSA accounts).
These 2022 annual funding limits are the combined contribution amounts between employee and employer funding. Be sure to let AccuPay know if you fund employee HSA’s outside of payroll, as this information must be reported on the employee W-2.
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 2022 is $2,850.Contributions to “dependent care” FSA accounts (for childcare) are limited to $5,000 in 2022 (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 $280 per month during 2022 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 2022 business mileage tax deduction rate is 58.5 cents per mile.
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 2022?
Students/children of business owners could earn up to $12,950 in wages during 2022 – up $400 from 2021 – without paying any Federal income tax. (This is amount is equal to the standard deduction for single taxpayers in 2022.) 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.”
Call your AccuPay Payroll Specialist at 317-885-7600 or email firstname.lastname@example.org with questions about your payroll or suggestions about how we can serve you better during 2022!