With the new year upon us, it’s important to consider various business needs such as staffing requirements, budget amounts, technology upgrades and client service initiatives along with tax updates. As tax season is quickly approaching, we’ve created a list of preliminary tax deadlines and other updates to be aware of for 2023. The information below is intended to help guide you through the tax planning process.
Required forms to keep on file
Employee benefits. Employees are to complete election forms for employee benefits before January 1, 2023, such as the following:
- 401(k) deferrals (see “changes and updates to rates and limits” section for changes to maximum deferrals for 2023).
- Flex plan contributions.
Employment eligibility verification—Form 1-9. This form is used to verify employee eligibility for employment for employees hired after 1986. This includes the employment of business owners as well. This form can be obtained on the U.S. Citizenship and Immigration Services website. There are monetary and other penalties for failure to obtain a proper I-9 Form. Penalties for violations are determined based on various factors and inspections are performed to make sure employers are compliant.
Statutory insurance. Make sure to have your certificates of coverage. Obtain certificates of coverage for independent contractors, as it’s requested as part of routine audits of workers’ compensation. Lack of these certificates will result in penalties.
Foreign Form 1042. This form is required for a withholding agent to report amounts subject to withholding as well as the tax withheld on income from foreign persons or entities. This form must be filed and provided to recipients by March 15, 2023.
Foreign Forms 8804, 8805 and 8813. These forms are used to report income and tax withheld from foreign partners:
- Form 8804 and Form 8805 must be filed annually with the IRS by the 15th day of the third month following the partnership’s year-end. Form 8805 needs to be filed for each foreign partner separately. Form 8804 serves as a transmittal form to accompany Form 8805. An extension for Form 8804 is granted with the filing of Form 7004, however, this is only an extension to file, not an extension to pay the taxes due.
- Form 8813 must be filed with each payment made for partnership withholding. These must be filed on or before the 15th of the fourth, sixth, ninth and twelfth months of the partnership’s tax year.
- Penalties and interest will be imposed for late filing or failure to furnish. Consult your tax advisor for further information.
Changes and updates to rates and limits
Social Security and Medicare. The 2023 Social Security and Medicare taxable wage base tables are as follows:
- 2023 Social Security. Wage base: $160,200. Tax rate: 6.20 percent. Maximum tax: $9,932.40.
- 2023 Medicare. Wage base: All wages. Tax rate: 1.45 percent. Maximum tax: No limit.
0.9 percent of additional Medicare tax on wages and compensation is required to be withheld on wages paid in excess of $200,000 for single, $250,000 for married filing jointly and $125,000 for married filing separately taxpayers for 2023. When the employee’s individual tax return is filed, the Medicare tax liability will be determined.
- 401(k) deferral. The maximum 401(K) deferral and catch-up contribution has increased for 2023. The 2023 maximum 401(K) deferral for non-self-employed individuals age 49 and under is $22,500. The catch-up contribution for individuals age 50 and older is $7,500. The maximum deferral for individuals age 50 and older is $30,000.
For self-employed individuals, the maximum company contribution for individuals age 49 and under for 2023 is $66,000. Catch-up contribution for individuals age 50 and older is $7,500. Maximum deferral for individuals age 50 and older is $73,500.
To take advantage of the catch-up contribution deferrals, you’ll need to make sure your plan documents are amended and updated to reflect catch-up contributions to be permitted.
- IRA contribution. Modified AGI phaseouts related to traditional IRA contribution deductions for 2023 are as follows. For single/head-of-household, the minimum is $73,000 and the maximum is $83,000. For married filing jointly/qualified widower, the minimum is $116,000 and the maximum is $136,000. For married filing separately, the minimum is $0 and the maximum is $10,000.
The above is for individuals who are active participants in other pension plans. Those individuals that are not active participants can deduct up to $6,500 ($7,500 if age 50 or older) regardless of AGI.
- Simple IRA and Simple 401(k). Age 49 and younger: Maximum contribution increased from $14,000 in 2022 to $15,500 in 2023. Age 50 and older: Maximum contribution increased from $17,000 in 2022 to $19,000 in 2023.
- 401(k) student loan benefit programs. An employer may make a non-elective contribution of five percent of an employee’s eligible compensation if that employee contributes at least two percent of their eligible compensation per pay period to go towards repayment of their student loan.
- Health savings accounts (HSA). Individuals: Maximum contribution increased from $3,650 in 2022 to $3,850 in 2023. Families: Maximum contribution increased from $7,300 in 2022 to $7,750 in 2023. Catch-up contributions: If an individual is 55 or older, they’re eligible for an annual catch-up contribution up to an additional $1,000 per year.
Year-end payroll adjustments
Year-end bonuses. Taxes must be withheld on bonuses for federal, state and city withholding. Employers can be subject to penalties and/or interest if the proper amount is not withheld.
Taxable fringe benefits. Inform your payroll service of expenses such as personal auto usage, travel for family members, meals and entertainment, and professional fees. Keep adequate records of these expenses. Expenses reimbursed under a non-accountable plan must be included in the employee’s income.
Non-qualified deferred compensation plans. Amounts should be included in gross income. The deferrals are to be reported in Box 1 and Box 12 (code Z) on the employee’s W-2. This income is subject to an additional 20 percent tax to be reported on Form 1040. The amount may also be reported as income on a 1099-Misc in Box 7.
Documentation for deductible business travel and meals. Any business that reimburses employees for any deductible business travel and meals must maintain support for the deduction which includes date, amount and location of the expense, as well as an explanation of the expense and those attending.
Deferral of FICA taxes. Under the CARES Act, employers can elect to defer the payment of the employer share of FICA taxes through the period ending December 31, 2020. 50 percent of the deferred taxes must be deposited by December 30, 2021, and the remaining amount deposited by December 31, 2022.
Employee Retention Credit. Under the Consolidated Appropriations Act passed in December 2020, eligible employers can claim a refundable tax credit against certain employment taxes as follows:
- 2020 eligible wages. Wages: $10,000. Tax credit: 50 percent. Maximum tax credit: Up to $5,000 per employee.
- 2021 eligible wages. Wages: $10,000. Tax credit: 70 percent. Maximum tax credit: Up to $7,000 per employee. The maximum tax credit per employee is $5,000 for 2020 and $21,000 for 2021. The Employee Retention Credit is available only for wages paid through September 30, 2021 (Q1, Q2 and Q3). For all quarters in 2020, the deadline to apply for the ERC is April 15, 2024, and for all quarters in 2021, the deadline is April 15, 2025.
This list doesn’t include all tax updates for 2023 but highlights the initial items you should be aware of. A more detailed list will be published in the upcoming issue. For a more detailed tax strategy, plan with your tax advisor. If you have questions about the topics above, contact a member of the Janover team today.
Dominic Rovano, CPA is a partner at Janover LLC and leads the firm’s Professional Services Group.