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2022 Payroll Update

2022 Payroll Update

Healthcare  |  Nonprofit  |  Manufacturing & Distribution  |  Government Contractors  |  Construction & Real Estate

Social Security and Medicare tax

As of January 1, 2022, the maximum amount of annual earnings subject to Social Security increases to $147,000 (from $142,800 in 2021). There is no limit on the amount of earnings subject to the Medicare tax.

The maximum Social Security tax to be deducted from an employee’s compensation during 2022 will be $9,114.00 (6.2% x $147,000).

The employer Social Security and Medicare tax rate will remain unchanged at 6.2% and 1.45%, respectively. The employee Medicare tax rate will remain at 1.45%, except for high wage earners.

High income taxpayers who have wages, compensation or self-employment income in excess of certain filing status thresholds ($250,000 if married filing jointly, $125,000 if married filing separately and $200,000 for all others), will be subject to an additional Medicare tax of .9%. For withholding purposes, wages in excess of $200,000, regardless of the filing status, will be taxed at a tax rate of 2.35% (1.45% + .9%). Only employees are subject to this additional Medicare tax.

Income tax withholding

In 2020, the IRS redesigned Form W-4, changing the way federal income tax withholding is calculated. No further changes were made to the form for 2022. Current employees do not have to submit a new form unless they want to make changes but are encouraged to file an updated W-4 if they received a large refund or owed taxes in 2021. The IRS online tool called the Tax Withholding Estimator is available to assist with completing the form.

There will be no change in the Maryland (MD), Delaware (DE), District of Columbia (DC), Pennsylvania (PA) or Virginia (VA) withholding tables.

MD’s maximum individual income tax rate remains at 5.75%. The special nonresident rate remains at 2.25%. MD local county rates are unchanged except for St. Mary’s, which decreases from 3.17% to 3.10% and Washington which decreases from 3.20% to 3.00%.

DE’s and VA’s maximum individual income tax rates will remain at 6.6% and 5.75% respectively. DC’s maximum individual income tax will increase to 10.75% (from 8.95% in 2021). PA’s individual income tax rate will remain at 3.07% for 2022.

Supplemental wages

The federal tax withholding rate on supplemental wages (e.g., bonus payments) exceeding $1 million during a calendar year remains at 37%. The rate for supplemental wages up to $1 million subject to a flat rate remains unchanged from 2021 at 22%.

PA and VA also allow flat rate withholding for supplemental pay at rates of 3.07% and 5.75%. MD rates range from 3.2% to 8.95%.

Unemployment taxes

The federal unemployment tax (FUTA) deposit rate is .6% for 2022. The federal taxable wage base will remain at $7,000. State taxable wage bases and rates for 2022 are listed on the chart below. Unemployment taxes are paid by the employer. PA employees are responsible for an additional withholding of .06% of total wages (unchanged from 2021).

MD and PA require all employers to file quarterly contribution reports electronically. DC employers with at least five employees are required to submit reports electronically.

The minimum threshold amount for quarterly FUTA tax deposits remains at $500.

State unemployment tax rates vary according to the employer’s experience and are sent to the employer annually. As a result of the COVID-19 pandemic, states are still determining their 2022 rates. 2022 wage bases and preliminary employer rates are as follows:

 

Wage Base

2022 Rates

MD

$  8,500

from 1% to 10.5%

DE

$16,500

from .3% to 8.2%

DC

$  9,000

from 1.9% to 7.4%

PA

$10,000

from 1.2905% to 9.9333%

VA

$  8,000

from .33% to 6.43%

Unemployment online filing and assistance

*MD employers can access annual rates and confirm filings and payments once registered.

Tax deposits

All federal tax deposits (employment tax, excise tax, corporate income tax, etc.) must be made by electronic funds transfer (EFT). Generally, electronic funds transfers are made using the Electronic Federal Tax Payment System (EFTPS). Employers may arrange for their financial institutions to initiate a same-day tax wire payment on your behalf. De minimis deposit rules still apply for employment taxes of less than $2,500 for a return period. Those who fail to use EFTPS will be subject to a 10% penalty.

State EFT thresholds for tax payments are as follows: MD - $10,000 or more; DC - $5,000 or more; PA - $1,000 or more; DE and VA require EFT for payment of all state taxes. MD, DC, DE & PA allow online processing of returns. VA requires every employer to file all withholding tax returns and payments electronically.

Employers should receive notification from the IRS and state taxing authorities as to the frequency of their depository requirements. Semi-weekly depositors have three banking days to make a deposit. Monthly depositors’ due dates are the 15th day of the next month for DE, MD, PA and the IRS, the 20th for DC and the 25th for VA.

Quarterly depositors may remit accumulated tax with the quarterly tax returns which are generally due the last day of the month following the end of each calendar quarter. MD and DC’s quarterly returns are due the 15th and 20th day of the following month, respectively. DE’s eighth-monthly depositors' payments are due within three working days after the close of the eighth-monthly period. Eighth-monthly periods end on the 3rd, 7th, 11th, 15th, 19th, 22nd, 25th and the final day of every month.

Employers, through the IRS website, can electronically pay using IRS Direct Pay or access the IRS Online Tax Calendar to view deposit dates and sign up for email reminders.

Accelerated deposit dates are required for federal tax accumulations of $100,000, which are due the next business day. VA employers must also remit VA withholding within three days of the date withheld. MD employers who withheld $15,000 or more during 2022 and currently have accumulated $700 or more in withholding tax must make a deposit within three business days after the payroll pay date. Employers who can file federal withholding tax returns on a monthly basis may apply to MD for a waiver of the three-day rule described above.

Wage statements

Federal rules require employers filing 250 or more W-2 forms to file electronically. DE and PA follow the federal threshold. DC’s and MD’s requirements remain at 25 or more. VA requires employers to electronically file if there are more than 50 employees. MD and PA allow withholding statements on magnetic media or other machine-readable formats.

Employers required to file at least 50 W-2 forms must report the aggregate cost of employer-sponsored health insurance coverage on the W-2 form. The IRS has granted an exemption to companies that file less than 50 W-2 forms until further notice. Employers with more than 50 full-time employees but less than 250 did not previously have to file reports regarding health insurance.

All federal and state Form W-2s are due to the taxing authorities by January 31, 2022.

Employers can set up electronic delivery of Forms W-2 with the employee’s consent. Paper copies must be given if no consent is given.

Information return penalties

Penalty amounts for failing to provide timely, complete and correct information returns are as follows: $50 if correctly filed within 30 days (max. $588,500 per year or $206,000 for small businesses); $110 if correctly filed more than 30 days after the due date by August 1st (max. $1,766,000 per year or $588,500 for small businesses); $290 if filed after August 1st or if required returns are not filed (max. $3,532,500 per year or $1,177,500 for small businesses). Failure to comply with electronic filing requirements could lead to a penalty of up to $290.

Additionally, payers are required to acknowledge their compliance with information return filings on their business income tax returns.

Minimum wage

The federal minimum wage rate is $7.25 per hour for employees covered by the Federal Fair Labor Standards Act. PA follows federal law. The current and future hourly minimum wage rate for DE, DC & VA are as follows:

Effective date

DE

DC

VA

January 1, 2022 $10.50 $15.20  $11.00
January 1, 2023  - $12.00
January 1, 2024 $15.00  - $13.50
January 1, 2025 - - $15.00 

Government contractors and grantees are subject to minimum wages and benefits based on the type of contract and grant awards. Please review any contracts and grant awards for minimum wage and benefit requirements if your company is performing work on a government contract or government grant.

Maryland’s current minimum wage is $12.50 per hour as of January 1, 2022. Future increases based on size, small employers and large employers (15 employees or more), are as follows:

Effective date

Small

Large

January 1, 2022

$12.20

$12.50

January 1, 2023

$12.80

$13.25

January 1, 2024

$13.40

$14.00

Prince George’s County (PG) will follow the MD state minimum wage of $12.50 as of January 1, 2022 until the effective date of the future increase is determined.

Montgomery County’s minimum wage is based on company size. Small employers (10 or fewer employees), average employers (50 - 11 employees) and large employers (51 or more employees in the county) current hourly minimum wage rates are as follows:

Effective date

Small

Average

Large

July 1, 2021

$13.50

$14.00

$15.00

Additional increases are scheduled annually until the minimum wage reaches $15.00 for all MD state and county employees effective July 1, 2026.

Overtime

The salary level eligible for overtime pay remains the same, $684 per week or $35,568 each year. Highly compensated employees making over $107,432 a year are exempt from earning overtime.

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This payroll update was compiled by the following members of Gross Mendelsohn's tax department: Dawn Ebeling, CPA and Jaidyn Nicely.

Published on January 26, 2022