There are numerous payroll changes for 2020, mostly on the Federal level. You can toss out the old Form W-4- there’s a new one. 2020 is a leap year, which may throw off payroll calendars. Finally, there are a few interesting state laws taking effect in the upcoming year. While the new Hawaii laws are not directly tied to payroll, they may have an impact on personnel.
Social Security tax
For 2020, employers and employees must each pay Social Security tax at 6.2%, up to the taxable wage base of $137,700 — increasing from $132,900 in 2019.
For 2020, employers and employees must each pay Medicare tax at 1.45% of all taxable wages, unchanged from 2019. Additional Medicare tax on wages over $200,000 remains at 0.9%.
IRS Form W-4 is changing to facilitate adjustments made by the 2017 Tax Cuts and Jobs Act.
In August 2019, the IRS unveiled its second draft of the new (2020) Form W-4. Essentially, the 2020 form skips the “allowances” concept, instead taking a five-step approach that includes:
- Basic information, such as name, Social Security number, and filing status
- Multiple jobs or spouse works
- Claim dependents
- Other adjustments
- Sign and date
Employers should have their employees review the 2020 Form W-4 (once finalized) and submit federal income tax withholding changes for 2020 on the new form. Employees do not have to fill out a new W-4 if they have no changes for 2020; their 2019 W-4 will suffice.
Per the IRS, employees should use the agency’s Tax Withholding Estimator to perform a “paycheck checkup” and to ensure the right amount of federal income tax is withheld from their wages.
Note that in November 2019, the IRS released its third draft of Publication 15-T, Federal Income Tax Withholding Methods, which breaks down how employers should withhold federal income tax based on employees’ 2020 Form W-4.
Employee Benefits Limits for 2020
- Maximum employee contributions = $19,500
- Employee catch-up contributions (age 50 or older) = $6,500
- Maximum contributions from all sources (employee + employer) = $57,000
- Maximum contributions from all sources (age 50 or older) = $63,500
Health Savings Account (employer + employee limits):
- Self-only coverage = $3,550
- Family coverage = $7,100
- Employee catch-up contributions (age 55 or older) = $1,000
Health Flexible Spending Account:
- Maximum pretax salary deferral = $2,750
Qualified Small Employer Reimbursement Arrangement:
- Maximum payment/reimbursement for self-only coverage = $5,250
- Maximum payment/reimbursement for family coverage = $10,600
Pretax Transportation Benefits:
- Transit passes and vanpool = $270 monthly
- Parking = $270 monthly
New Federal Overtime Rule
On Sept. 27, 2019, the U.S. Department of Labor issued a final rule, raising the salary threshold for exempt executive, administrative, and professional employees from $455 per week to $684 per week. The final rule is effective Jan. 1, 2020.
Basically, to keep being exempt from overtime under federal law, salaried-exempt employees must receive no less than $684 per week. They will be eligible for overtime if they receive less than that amount.
During a leap year — which happens roughly every four years — February has 29 days instead of 28 days. This may cause an extra payday for the year, depending on employees’ pay frequency and when their actual payday occurs.
Since 2020 is a leap year, impacted employers should promptly determine the best way to handle the extra payday. Also crucial is communicating related paycheck changes to employees in a timely manner.
Employers will need to stay on top of state and local payroll tax changes in 2020, including:
Unemployment Tax Reports
Hawaii employers will be required to file quarterly unemployment tax reports through the Department of Labor and Industrial Relation’s website.
Mandatory Electronic Filing of Tax Forms for taxable periods beginning on or after January 1, 2020:
- 2019-10– Mandatory electronic filing of corporate income tax returns
- 2019-11– Mandatory electronic filing of withholding tax returns for employer’s whose annual liability exceeds $40,000
- 2019-12– Mandatory electronic filing of franchise tax returns
- 2019-13– Mandatory electronic filing of public service company tax returns
Other Hawaii Laws taking effect in 2020 that are of interest to employers
January 11, 2020
- Marijuana decriminalization: The possession of three grams or less of marijuana will no longer be considered a criminal offense in the State of Hawaii effective January 11, 2020. Rather, such possession of marijuana will constitute a violation that carries a monetary fine of $130.
July 1, 2020
- New Gender Identification: Hawaii driver’s licenses and State ID cards will include the cardholder’s “gender designation” instead of “sex.” The gender designation must include the options of F, M, or X. The “X” option indicates that the individual is non-binary, or identifies as neither male nor female.
- Repeal of Law Requiring Time Off to Vote: Beginning with the August 2020 primary election, elections will be conducted by mail. Thus, time off on Election Day to go to the polls is no longer necessary. Section 47 of Act 136 repealed Hawaii Revised Statutes § 11-95, which had required employers to provide up to 2 hours of time off to vote.
This is just a brief overview of Federal and State modifications. Employers are encouraged to make sure the person or department handling payroll and other reporting functions is up to date on the changes coming in 2020.