John E. Chapman
Chief Executive Officer
New Payroll Tax Laws Set to Take Effect in 2025
With 2025 now upon us, businesses across the country are facing a host of regulatory changes that could impact their payroll taxes. With new rules coming into effect, it is important for business leaders and Human Resource professionals to stay informed about the potential changes to ensure their operations remain compliant.
Key Federal Changes to Be Aware Of
One of the biggest updates for 2025 comes from the Social Security Administration (SSA), which has announced an increase in the wage base limit for Social Security taxes. This will rise to $176,100 for 2025, up from $168,600 in 2024—an increase of $7,500. This change means that employees and employers will be paying Social Security taxes on more income, but the tax rate itself will remain unchanged at 6.2%. For businesses, this means that the maximum Social Security tax each employee and employer will pay in 2025 will be $10,918.20, which is $465 more than in 2024.
As for Medicare taxes, the rate remains at 1.45% and applies to all earnings, with no wage base limit. However, high earners should take note that if an individual’s income exceeds $200,000 ($250,000 for married couples filing jointly), an additional 0.9% Medicare tax will apply. So, if you have employees with higher salaries, this is something to keep in mind as you review payroll tax calculations.
On top of these updates, businesses that utilized the Employee Retention Credit (ERC) during the pandemic may still be awaiting final processing of their claims. The IRS is working through a considerable number of claims—around 400,000—totaling $10 billion in eligible funds. While the IRS is diligently reviewing these claims, it is important for businesses to stay alert and continue working with tax professionals to ensure compliance.
SECURE 2.0 Act: Key Provisions for Retirement Plans
For businesses offering retirement plans, the SECURE 2.0 Act is bringing several important updates starting in 2025. One key provision is the introduction of higher “catch-up” contributions for employees aged 60 to 63. This means that employees in this age range will be allowed to contribute up to $11,250 to their retirement plans, such as 401(k)s, 403(b)s, and governmental 457(b) plans. This is a significant increase over the standard catch-up contribution limit, which is currently $7,500 for those over 50. This change is optional for employers to implement, so it is important to check with your retirement plan provider to see if this provision will be available for your employees.
Another important update under SECURE 2.0 is the requirement for auto-enrollment in 401(k) or 403(b) plans for new hires. Starting in 2025, businesses will need to automatically enroll eligible employees in new plans established after December 29, 2022, with an initial contribution rate of 3%, which will gradually increase by 1% each year until it reaches a maximum of 10% (or up to 15%). While employees will still have the option to opt out, this change aims to encourage higher retirement savings rates. However, certain small businesses (fewer than 10 employees), new businesses (less than three years old), and other entities like church or government plans are exempt from this requirement. If your current plan predates December 29, 2022, you are exempt from this provision.
State and Local Changes to Consider
In addition to these federal updates, businesses will also need to be aware of changes in state and local payroll tax regulations. One notable update is the revision of minimum wage rates, which went into effect on January 1, 2025. Depending on where your business operates, these changes may impact your payroll calculations, so it is crucial to stay informed about the new minimum wage laws in your state or locality.
What Should Employers Do Next?
With all these changes on the horizon, it’s a good time to review your business’s payroll processes. Take the time to:
- Ensure that your payroll systems are updated to reflect the new wage base limits and tax rates.
- Work with your payroll provider and CPA to verify that the appropriate tax calculations are being applied. While this overview provides a helpful starting point, it is important to remember that the specifics of how these updates apply to your business can vary. They can offer tailored guidance and help you navigate any complexities associated with these changes.
- Stay informed about any state or local tax law changes, especially regarding minimum wage adjustments.
As you navigate these upcoming changes, we are here to be a resource, providing you with timely and relevant information to help your business stay informed and compliant.
If you have any questions or need further assistance, do not hesitate to reach out—we’re committed to supporting you through these transitions and ensuring your business is well-prepared for success in 2025 and beyond.
This data is informational, subject to change, and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney, or Advisor.
Sources: www.irs.gov, 2025 Publication 15-T www.irs.gov/pub/irs-pdf/p15t.pdf
