Pay Matters! Year-End 2017 Edition
Year End is Here! Our Year-End edition of Pay Matters brings you key updates to ensure a smooth transition to 2018. Read on to stay informed and stay in compliance with relevant year-end alerts and insights that matter most for your payroll.
2018 HSA Contribution Limits
On May 4, the IRS published the 2018 health savings account (HSA) contribution limits. An HSA allows taxpayers enrolled in high-deductible health plans to set aside money for medical expenses on a pre-tax basis. The following chart compares the 2017 and 2018 annual limits:
|HSA Contribution Limit
(both employee and employer)
|HDHP Minimum Deductibles||Individual: $1,350
|HDHP Maximum Out-of-Pocket
(Deductibles, Co-Payments, and Other Amounts, but not Premiums)
Final 2017 FUTA Credit Reduction States
On November 13, the US Department of Labor announced the following 2017 FUTA Credit Reduction states.
|State||Normal FUTA Rate||Credit Reduction||Total FUTA Rate||Total tax per employee*|
* For employees earning at least $7,000
The FUTA tax rate is 6.0%. However, employers who pay their state unemployment tax in time can take a 5.4% credit, resulting in an effective FUTA rate of 0.6%. Credit reduction occurs when a state fails to repay loans from the federal government by November 10. Employers in those states cannot take the entire 5.4% credit. The credit is reduced by 0.3% each year the state remains in debt.
2017 marks the seventh year of credit reduction for California and the Virgin Islands. They were also potentially subject to a “Benefit-Cost Ratio” (BCR) add-on tax which would have further increased their FUTA rate. However, both California and the Virgin Islands were granted waivers for the BCR add-on.
If you have employees in a credit reduction state, you will owe additional FUTA (940) taxes at the end of the fourth quarter of 2017. If you are a tax service client, you will be debited in January for the applicable percentage of your FUTA taxable payroll. Viventium will notify you of the exact amount of the additional debt prior to the date.
Social Security Wage Base to Increase in 2018
The Social Security Administration announced an increase in the social security wage base in 2018.
Effective January 1, 2018, the wage base will increase from $127,200 to $128,400. The maximum tax payable by each employee will be $7,960.80 or 6.2% of the wage base. Employers match the employee amount with an equal contribution.
Both the employee and the employer Medicare tax rate for 2017 will remain at 1.45%, and there is no wage base for Medicare. Employers are required to withhold an additional 0.9% in Medicare taxes on wages earned by employees in excess of $200,000 in a calendar year. Employers are not required to match this 2.35% employee rate but will continue to pay 1.45% in Medicare taxes on all subject wages earned by employees.
For more information and a history of the social security wage base click here.
2018 Commuter Limits
The 2018 excludable amount for employer-provided “qualified transportation fringe benefits” will increase from $255 to $260 per month for qualified parking. The monthly limit for transit passes and vanpooling will also increase to $260 per month.
2018 Pension Plan Limits
The IRS has announced that it will not change most pension plan limits for the coming year.
The 2018 limits on the exclusion for elective deferrals for 401(k), 403(b), and 457 plans will increase from $18,000 to $18,500. The catch-up contribution for those ages 50 and older will remain at $6,000.
The limit on annual contributions to an individual retirement account is $5,500, unchanged from 2017. The additional catch-up contribution limit to an individual retirement account for those 50 and older is $1,000, unchanged from 2017.
For more click here.
New York Overtime Exemption Thresholds are Increasing
The New York Department of Labor is legally required to maintain a weekly overtime exemption threshold that is 75 times the hourly minimum wage. Since minimum wage is increasing across the state, overtime exemption thresholds will increase as well. Employers in New York may need to increase the salaries of exempt executive and administrative employees by December 31 to comply with state regulations.
The scheduled salary threshold increases vary based on geographic location. Also, note that in New York City the changes are based on employer size. The scheduled salary threshold increases, based on location and employer size, will take effect as follows:
New York City
Large employers (11 or more employees)
- $975 per week ($50,700 per year) on December 31, 2017
- $1,125 per week ($58,500 per year) on December 31, 2018
Small employers (10 or fewer employees)
- $900 per week ($46,800 per year) on December 31, 2017
- $1,012.50 per week ($52,650 per year) on December 31, 2018
- $1,125 per week ($58,500 per year) on December 31, 2019
Nassau, Suffolk, and Westchester Counties
- $825 per week ($42,900 per year) on December 31, 2017
- $900 per week ($46,800 per year) on December 31, 2018
- $975 per week ($50,700 per year) on December 31, 2019
- $1,050 per week ($54,600 per year) on December 31, 2020
- $1,125 per week ($58,500 per year) on December 31, 2021
Remainder of the State
- $780 per week ($40,560 per year) on December 31, 2017
- $832 per week ($43,264 per year) on December 31, 2018
- $885 per week ($46,020 per year) on December 31, 2019
- $937.50 per week ($48,750 per year) on December 31, 2020
Note that many industries in New York have separate wage orders regarding minimum wage and salary threshold increases. We encourage all employers to educate themselves regarding Wage Orders affecting their businesses.
We further encourage employers to evaluate their exempt executive and administrative employees to determine if any worker earning under the applicable state threshold should be 1) converted to nonexempt status or 2) given a pay increase to comply with the regulations.
Reminder: Paid Family Leave Effective 1/1/18
Paid Family Leave is coming to New York.
Beginning in 2018, employees who have worked 6 months for their employers are eligible to receive 50% of their average weekly wage (capped at 50% of the statewide average weekly wage) for each of their allowed 8 weeks of leave. By 2021, the percentage will increase to 67% of their average weekly wage, capped at 67% of the statewide average weekly wage, for each of their allowed 12 weeks of leave.
Employers may deduct 0.126% of their employees’ weekly wages (up to, but not to exceed, 0.126% of the statewide average weekly wage (SAWW)). The SAWW to use for deductions from July 1, 2017, through June 30, 2018, is $1,305.92.
This means that the maximum weekly contribution for employees earning more than $1,305.92 per week is $1.65. For employees earning less than $1,305.92 per week, the contribution is 0.126% of their weekly wage.
Employers were permitted to commence making such payroll deductions for PFL insurance premiums as early as July 1, 2017.
Employers will use these funds to provide employees with paid family leave through either a self-insured plan or a rider to their existing third-party disability benefit plan. If you’ve not already done so, it is important that you reach out to your insurance provider to confirm that they will add paid family leave insurance to your plan and to clarify the impact on your premium.
Click here for more information on the requirements and benefits under the New York Paid Family Leave law.
2018 Wage Parity Rates
On October 31, New York State Department of Health announced new wage parity rates in effect for 2018, reflecting increases to the NYS minimum wage.
Effective December 31, 2017 (not January 1!) until December 30, 2018, wage parity rates will be:
|NYC Large Employer||NYC Small Employer||Nassau, Suffolk, Westchester|
New York City Expands Paid Sick Leave Protections
On November 6, Mayor Bill de Blasio signed legislation expanding the paid sick leave law to cover victims of domestic violence, sexual assault, stalking, and human trafficking Designating the paid leave for these abuses as “safe” hours, employees can use earned sick time to obtain services from a domestic abuse shelter, meet with attorneys or social service providers, relocate, or take other actions to ensure their own safety or the safety of a family member. The legislation also changes the name of the Act from the “Earned Sick Time Act” to the “Earned Sick and Safe Time Act.”
Prior to this legislation, employees could take earned sick time for various health-related needs, but not for abuse-related issues. The expanded protection is effective 180 days after becoming law.
For more click here.
Penalty Notices Have Arrived
As promised by the IRS, employers have started receiving Letter 226J, assessing potential ACA penalties for 2015.
Letter 226J contains a table showing the proposed amount and type of penalty for each month of 2015. Also included is Form 14765, “Employee Premium Tax Credit (PTC) List” showing for each month which full-time employees received a premium tax credit and the Series 1 and 2 codes (Lines 14 and 16) that appeared on their 2015 Form 1095-C.
What are the Penalties?
There are two types of penalties for 2017:
- 4980H(a) – Sledgehammer: Applies to ALEs (100 or more full-time employees or full-time equivalents) who did not offer minimum essential coverage (MEC) to at least 70% of full-time employees AND had at least one employee who received a premium tax credit on a Marketplace. The penalty is $2,080 ($173.33 per month) times the number of full-time employees (less the first 80 employees).
- 4980H(b) – Tackhammer: Applies to ALEs (100 or more full-time employees or full-time equivalents) who DID offer MEC to at least 70% of full-time employees BUT had at least one FT employee who received a premium tax credit on the Marketplace. The penalty is $3,120 ($260 per month) for each employee who received a credit, up to the amount of the 4980H(a) penalty.
The letter also contains Form 14764, ESRP Response, which is due in 30 days, if you disagree with the penalty.
2018 Affordability Threshold
The IRS has announced that the 2018 ACA affordability threshold will be 9.56%, a decrease from the 2017 threshold of 9.69%. This means that to be considered affordable, an employee’s health care contribution cannot exceed 9.56% of his household income.
For more click here.
2018 Increased Penalties
On October 19, the IRS announced the increased penalty amounts for failure to file and furnish Forms W-2 and 1095-C for the year 2018. Check out our chart below to compare the penalty amounts from 2017 to 2018.
|Penalty Per Return||2017 Forms- Due January 31, 2018||2018 Forms- Due January 31, 2019|
|Failure to File/Furnish||$260 per Form||$270 per Form|
|Penalty if corrected within 30 days||$50 per Form||$50 per Form|
|Penalty if corrected by August 1||$100 per Form||$100 per Form|
The IRS places annual caps on the penalty amount that varies based on a company’s gross receipts. For more details click here.
New QSEHRA Guidance
The IRS has issued guidance on the requirements for providing a qualified small employer health reimbursement arrangement (QSEHRA). The guidance applies to plans starting on and after November 20, 2017.
Effective January 1, 2017, small employers (non-ALEs) who don’t offer health coverage to any employee could offer Qualified Small Employer Health Reimbursement Arrangements. QSEHRAs must be funded by the employer only, with no employee contributions, and may reimburse employees for medical expenses, including health insurance premiums.
The new guidance covers topics such as eligibility, the statutory dollar limit, written notice requirements, reporting, and coordination with the premium tax credit and health savings account requirements.
Under the original guidance, employers had to provide written notice to employees at least 90 days before the start of the plan. The new guidance relaxes this requirement for 2018, extending the deadline for furnishing the initial written notice to eligible employees by the later of (a) February 19, 2018, or (b) 90 days before the first day of the plan year of the QSEHRA.
The value of the QSEHRA benefit will be reported in Box 12 code FF on Forms W-2 beginning with the 2017 filings, due in 2018.
For more details on requirements under QSEHRA, click here.