SOCIAL SECURITY WAGE BASE
Wages will be taxed up to $160,200 for FICA in year 2023. The 2023 rates for FICA (6.2%) and Medicare (1.45%) remain unchanged.
FUNDING 2023 RETIREMENT PLANS
Moderate changes were made to retirement plan funding for 2023. Funding limits for employee payroll contributions to various types of “qualified” retirement plans during 2023 are as follows:
- 401k, 403b, 457 govt. plans – maximum employee elective deferral of $22,500 with additional catch-up of $7,500 for employees 50 and over
- SIMPLE IRA – maximum employee elective deferral of $15,500 with additional catch-up of $3,500 for employees 50 and over
*An employee must be at least age 50 by 12/31/23 to contribute the “catch-up” contributions.
NOTE – The maximum compensation which can be “counted” for defined contribution retirement plans is $330,000 for 2023 (which produces a funding “cap” of $66,000 in 2023).
HEALTH SAVINGS ACCOUNTS
The 2023 annual funding limits to health savings accounts (HSA’s) are $3,850 for self-only and $7,750 for family. Employees age 55 – 65 can fund additional “catch-up” amounts of $1,000 to HSA’s (to $4,850 for self-only and $8,750 for family HSA accounts).
These 2023 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 2023 is $3,050.Contributions to “dependent care” FSA accounts (for childcare) are limited to $5,000 in 2023 (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 $300 per month during 2023 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 2023 business mileage tax deduction rate has not yet been released by the IRS. The rate for the second half of 2022 was increased to 62.5 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 2023?
Students/children of business owners could earn up to $13,850 in wages during 2023 – up $900 from 2022 – without paying any Federal income tax. (This amount is equal to the standard deduction for single taxpayers in 2023.) 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 2023!
This PayDay is for educational purposes only and does not constitute tax and/or legal advice. Any links to external resources are for educational purposes only. AccuPay is not affiliated with nor receives any renumeration from any outside sources. Please consult with your tax and/or legal advisor before applying any suggestions made here or through external links.