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Are Payroll Taxes Changing For 2023 in the U.S.?

In 2023, employers and employees must stay informed about changes in payroll taxes. Payroll taxes play a vital role in funding federal programs like Social Security and Medicare and state and local programs such as unemployment insurance and worker’s compensation. This article aims to provide an overview of the key payroll tax changes in the USA for 2023. 

What Are Payroll Taxes?

Payroll taxes are levied on wages and salaries earned by employees. Most commonly, these taxes are divided into social security taxes and Medicare taxes. Social Security tax funds provide retirement, disability, and survivor benefits to eligible persons. Medicare tax funds offer health insurance for senior individuals and persons with certain disabilities. 

Expected Changes in Payroll Taxes in 2023

Social Security Taxes

In 2023, the social security wage base will increase from the 2022 limit. This change will impact the number of earnings subject to the 6.2 % social security tax for employers and employees. The Social Security Administration (SSA) will release the new wage base limit.

Employers and employees may experience a higher tax liability with the increased wage base. Therefore, monitoring the SSA’s updates is essential to prepare for the potential financial impact on business and employees.

Medicare Taxes

The Medicare tax rate will remain unchanged in 2023, with employers and employees each contributing 1.45% of wages for a combined rate of 2.9%. There is no wage limit for the Medicare tax, meaning all wages are subject to this tax.

The additional Medicare tax of 0.9% will continue to apply to high-income earners in 2023. According to IRS, this tax is levied on employees who earn more than $200, 00 as an individual, $250,000 for married couples filing jointly, or $125,000 for a married couple filing separately. Employers are responsible for withholding this additional tax once an employee’s wage exceeds the applicable threshold.

Federal Unemployment Taxes (FUTA)

The federal unemployment tax act (FUTA) tax rate is expected to remain at 6.0% in 2023, with a wage base of $7000 per employee. However, employers can receive a credit of up to 5.4% for state unemployment taxes, effectively reducing the FUTA rate to 0.6% for most employers.

Sale unemployment tax act (SUTA) rates vary by state and can change annually. Therefore, employers should monitor their respective state’s unemployment tax rates for any changes in 2023.

State and Local Payroll Tax Changes

State income tax withholding rates and brackets may change in 2023. Employers should consult their state’s Department of Revenue or Taxation to ensure they are aware of any updates. In addition, some local jurisdictions, such as cities and countries, impose their payroll taxes. Employers should monitor local tax regulations for changes in 2023 and adjust their payroll systems accordingly.

Preparing for 2023 Payroll Tax Changes

Employers should update their payroll systems to reflect any changes in federal, state, and local payroll tax rates and wage bases. This will ensure accurate tax withholding and reporting. In addition, employers should inform employees of any changes to payroll taxes that may impact their paychecks. This will help employees understand and plan for potential changes in their take-home pay. Finally, employers should consider consulting with payroll professionals or tax advisors to stay informed about payroll. 

Impact of Other Taxes on Payroll Taxes

It’s crucial to remember that payroll taxes are only one component of the U.S. tax structure as a whole. The amount of money employees receive after taxes, such as salary and sales taxes, can also vary. Recently, there have been discussions about potential adjustments to the entire U.S. tax code, including suggestions to adopt a national sales tax and raise income tax rates for the wealthiest taxpayers. 

Final Thoughts

As of right now, no formal announcements have been made regarding adjustments to payroll taxes in the United States for 2023. Payroll taxes, however, could be impacted in the future by possible changes to the social security and Medicare programs. Therefore, it’s crucial to remain up-to-date on any potential changes that might have an effect on your salary and overall financial situation.


How To Reduce Payroll Taxes?

Follow the below-mentioned advice to reduce your payroll taxes. 

  • Hire independent contractors instead of employees
  • Create employee benefit plans like health insurance, retirement plans, and flexible spending accounts
  • Use tax software to ensure accurate tax calculations and reduce errors 
  • Utilize tax credits such as work opportunity tax credits or employee retention credit
  • Consider outsourcing payroll tasks to a professional payroll service provider
  • Take advantage of state-specific tax incentives 
What Is The Difference Between Payroll Tax And Income Tax?

Employers and employees pay payroll taxes to fund social security and Medicare programs. Income tax is paid by individuals on their earned income, capital gains, and other sources of income. Payroll tax is calculated as a percentage of an employee’s wages, while income tax is based on the individual’s taxable income after exemptions and deductions. 

What Makes Up Payroll Taxes?

Payroll taxes typically consist of several components, which may include the following:

  • Social security tax
  • Medicare tax
  • Federal income tax withholding
  • State and local taxes
  • Unemployment insurance tax
  • Worker’s compensation insurance 
Does Everyone Pay A Payroll Tax?

Only individuals who are employed as employees and their employers are subjected to payroll taxes. Self-employed individuals, such as independent contractors, typically pay self-employment taxes instead of payroll taxes. Additionally, certain types of income, such as investment or rental income, are not subject to payroll taxes. 

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