California Payroll Updates expected in 2020

California Payroll Updates expected in 2020

Updates expected to roll out from January 2020

While each state has a slight variation on the basic type of payroll taxes and California has its own set. Here is an overview of the California payroll updates expected in 2020.

There are mainly two types of payroll taxes – one is the deductions that are made from the employees salary and the second is the taxes that the employer will pay, based on the wages he or she is paying.Let’s start by taking a look at the types of taxes that come under the umbrella of the California Payroll Taxes:

  • California Personal Income Tax (PIT) – Paid by employees 
  • State Disability Insurance Tax (SDI) – Paid by employees 
  • Unemployment Insurance TAX (UI) – Paid by the employer
  • Employment Training Tax (ETT) – Paid by the employer

This is how payroll taxes are calculated:

The pay check of an employee consists of social security, income tax and medicare and in case you are in a state where there is a state income tax, the pay check would include that as well. While there is a cap on how much social security can be calculated (6.2% of the gross pay and cap at $132,900 total earnings), medicare has no cap and the calculation is done at 1.45% of the gross pay. However, if the annual earnings cross $200,000, then an additional 0.9% needs to be withheld and this is normally taken from the employee. Federal taxes are normally calculated on the basis of Form W-4 and this would vary from person to person. 

If there is a tax, it is time bound and when something is time bound, there is also penalty:

Payroll taxes are amounts that are due to the government and when they are not paid on time, there will be a penalty on them. Employers need to make sure that the payments are made on time, the amounts are calculated correctly and the deposits are made in the manner prescribed. If either of these steps is done incorrectly, there will be a penalty and the amount will vary based on the error made. 

Here are the latest updates related to the payroll and taxes in the state of California, which will come into effect, starting January 1st, 2020:

  • The maximum earnings to the social security payroll taxes will increase from $4800 to $137,700. In 2019, the cap was at $132,900. 
  • It has also been announced that the social security benefits for close to 70 million Americans will increase by 1.6% in the coming year. 
  • The wage that can be taxed will undergo an automatic alteration, which is based on the national average wage and the increases in it. In 2018-2018, the rise was 3.6%. 
Payroll Taxes: Cap on Maximum Earnings
Type of Payroll Tax2019 Maximum Earnings2020 Maximum Earnings
Social Security$132,900$137,700
MedicareNo limitNo limit

This is what you can expect in relation to the tax brackets in the year 2020:

The IRS has already issued the tax bracket adjustments for the year 2020, and the details were made available on November 6th, 2019. The adjustments in the tax brackets will influence several decisions, including how much salary to defer into the 401(k) or health savings accounts. 

  • The normal deduction for single tax payers and married tax payers will rise and vary. The amount will increase from $200 to $12,400. 
  • Married taxpayers, who file returns in a joint manner will see a rise of $400 to the new $24,800. 
  • And when the heads of the households are filing their returns, they can see an increase of $300 to a new amount of $18,650. 

Here is a quick look at how the payroll updates will look like in the year 2020:

Single filing individuals:

Tax Rate                    2019 Taxable Income2020 Taxable Income
10%$0 – $9,700$0 – $9,875
12%$9,700 – $39,475$9,875 – $40,125
22%$39,475 – $84,200$40,125 – $85,525
24%$84,200 – $160,725$85,525 – $163,300
32%$160,725 – $204,100$163,300 – $207,350
35%$204,100 – $510,300$207,350 – $518,400
37%Over $510,300Over $518,400
10%$0 – $9,700$0 – $9,875
12%$9,700 – $39,475$9,875 – $40,125
22%$39,475 – $84,200$40,125 – $85,525
24%$84,200 – $160,725$85,525 – $163,300
32%$160,725 – $204,100$163,300 – $207,350
35%$204,100 – $510,300$207,350 – $518,400
37%Over $510,300Over $518,400

Married couples filing jointly:

Tax Rate                    2019 Taxable Income2020 Taxable Income
10%$0 – $19,400$0 – $19,750
12%$19,400 – $78,950$19,750 – $80,250
22%$78,950 – $168,400$80,250 – $171,050
24%$168,400 – $321,450$171,050 – $326,600
32%$321,450 – $408,200$326,600 – $414,700
35%$408,200 – $612,350$414,700 – $622,050
37%Over $612,350Over $622,050
10%$0 – $19,400$0 – $19,750
12%$19,400 – $78,950$19,750 – $80,250
22%$78,950 – $168,400$80,250 – $171,050
24%$168,400 – $321,450$171,050 – $326,600
32%$321,450 – $408,200$326,600 – $414,700
35%$408,200 – $612,350$414,700 – $622,050
37%Over $612,350Over $622,050

 Married couples filing separately:

Tax Rate                    2019 Taxable Income2020 Taxable Income
10%$0 – $9,700$0 – $9,875
12%$9,700 – $39,475$9,875 – $40,125
22%$39,475 – $84,200$40,125 – $85,525
24%$84,200 – $160,725$85,525 – $163,300
32%$160,725 – $204,100$163,300 – $207,350
35%$204,100 – $306,175$207,350 – $311,025
37%Over $306,175Over $311,025
10%$0 – $9,700$0 – $9,875
12%$9,700 – $39,475$9,875 – $40,125
22%$39,475 – $84,200$40,125 – $85,525
24%$84,200 – $160,725$85,525 – $163,300
32%$160,725 – $204,100$163,300 – $207,350
35%$204,100 – $306,175$207,350 – $311,025
37%Over $306,175Over $311,025

 Heads of Households filing:

Tax Rate                    2019 Taxable Income2020 Taxable Income
10%$0 – $13,850$0 – $14,100
12%$13,850 – $52,850$14,100 – $53,700
22%$52,850 – $84,200$53,700 – $85,500
24%$84,200 – $160,700$85,500 – $163,300
32%$160,700 – $204,100$163,300 – $207,350
35%$204,100 – $510,300$207,350 – $518,400
37%Over $510,300Over $518,400
10%$0 – $13,850$0 – $14,100
12%$13,850 – $52,850$14,100 – $53,700
22%$52,850 – $84,200$53,700 – $85,500
24%$84,200 – $160,700$85,500 – $163,300
32%$160,700 – $204,100$163,300 – $207,350
35%$204,100 – $510,300$207,350 – $518,400
37%Over $510,300Over $518,400

Helpful reading

References for California Payroll Updates in 2020

https://help.onpay.com/hc/en-us/articles/360020568632-Federal-and-State-Payroll-Updates-2019

https://en.wikipedia.org/wiki/Payroll_tax

https://squareup.com/us/en/townsquare/payroll-taxes-defined https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/2020-fica-payroll-taxes-hit-higher-incomes.aspx

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