2024 BottomLine
Newsletter

2025 Payroll Wage Bases
and Tax Rates

Social Security

First $176,100 is taxable, with a 6.2% tax rate for both employee and employer.

Medicare

All wages are taxable, with a 1.45% tax rate for both employee and employer. Employers should withhold an additional 0.9% from employee's wages exceeding $200,000. There is no employer match on the additional 0.9%.

Federal and State Unemployment

Federal Unemployment tax is 6% with most employers receiving a credit reduction of 5.4%, taxing at 0.6% on the first $7,000 in wages.

Minnesota Unemployment

For 2025, the first $43,000 is taxable at rates depending on employment history and industry.**

Wisconsin Unemployment

For 2025, the first $14,000 is taxable at rates depending on employment history and industry.**

**Established employers will receive their 2025 experience-modified rate from respective states.

Tips

Tips are subject to Social Security and Medicare as well as Federal and state unemployment taxes. Service charges (forced gratuity) when turned over to the employee are considered regular wages.

Sources:

www.irs.gov

www.dwd.wisconsin.gov

www.uimn.org/employers/wages-taxes/tax-rates

FORM 1099: Reporting Requirements for Annual Information Returns

The following summary represents the filing requirements effective for 2024 information return reporting:

1099-NEC

Income reportable: Non-employee compensation

Reportable payments: amounts over $600 made by a trade or business in exchange for services by nonemployees. Reportable payments include but are not limited to: director fees, commissions to non-employees, payments for legal services, services performed including parts and materials.

• Due Date to recipients: January 31, 2025
• Due Date to IRS: January 31, 2025

1099-MISC

Income reportable (most common listed): Rent, Royalties, Other Income, Health care payments, Gross Proceeds to an Attorney

Reportable payments: $10 in royalties, $600 in rents, prizes and awards, other income payments, and health care payments

• Due Date to recipients: January 31, 2025
• Due to IRS: February 28, 2025 (Paper), March 31, 2025 (Electronic)

1099-INT, 1099- DIV, 1099-R

Income reportable: interest, dividends and distributions of stock, distribution from a qualified benefit plan.

Reportable payments: payments of at least $10 of interest, or $600 of interest (including tax-exempt interest) if paid in the trade or business of lending money or on registered notes, aggregate dividends and other distributions on stock of $10 or more, and for each distribution of at least $10 from a pension, annuity, retirement plan, Section 457 Plan, IRA, insurance contract, etc. during the year.

• Due Date to recipients: January 31, 2025
• Due to IRS: February 28, 2025 (Paper), March 31, 2025 (Electronic)

1099-K

Payments made by credit card or payment card and certain other types of third-party network transactions must be reported on Form 1099-K. This reporting is done by the credit card or certain third-party network providers and should not be reported on Form 1099-MISC or NEC. When reviewing your recipient lists, exclude amounts that were paid by one of these payment types. If a recipient was paid by both check and credit card, only the amounts payable by check would be reported on either the 1099-MISC or NEC.

Exceptions

Some payments do not have to be reported although the income may be taxable to the recipient. Below are the most common:

• Generally, payments to a corporation, including a LLC that is treated as a C or S corporation are exempt from information reporting. Medical and Health care providers and attorneys that are taxed as a corporation are not allowed this exception and the amounts paid are still reportable.
• Payments for merchandise, freight, storage and similar items do not need to be reported.
• Payments to a tax-exempt organization, the United States, a state, or a foreign government do not need to be reported.

How to file

You are required to file electronically when your information return filings exceed nine in aggregate. This includes W-2s, 1099s, 1095s, and more. For example, if you are filing seven W-2s, two 1099-NECs, and one 1099-MISC, all must be filed electronically. The IRS considers failure to file electronically when required as the same as failure to file, subject to the penalties outlined below.

Penalties

Failure to file or late filing of Annual Information Returns range from $60-$330 per information return; penalties for failure to provide Forms 1099 and 1098 to recipients range from $60-$330 per recipient; and intentional disregard of filing requirements incur a penalty of at least $660 per payee statement with no maximum penalty.

Other annual information reporting requirements:

• Form 1099-LS Reportable Life Insurance Sale, which requires the acquirer of a life insurance contract or any interest in a life insurance contract in a reportable policy sale to issue a form reporting payments made with respect to the sale.
• Form 1098 - Mortgage interest recipients of $600 in the course of a trade or business
• Form 1099-B - Broker or Barter exchange transactions
• Form 1099-S - Real estate sales
• Form 1099-G - Certain federal, state or local government unit payments (unemployment compensation)
• Form 1099-PATR - Cooperatives which have paid at least $10 in patronage dividends and other distributions.

For detailed information regarding Form 1099 reporting, visit www.irs.gov.

If you have questions regarding information return reporting requirements or would like Redpath to prepare your forms, please contact Melissa Doumbia, CPP at mdoumbia@redpathcpas.com.

For Redpath and Company preparation of 1099s and 1098s, we require the following information by January 10, 2025 in Microsoft Excel for over 10 recipients:

Required recipient information:

• Name
• Address
• Social Security Number or Federal I.D. Number
• Total of Payments in 2024

Retirement Plan Tax Strategies
Available for 2024

There is still time to adopt an IRS qualified retirement plan as a tax planning strategy for 2024. Retirement plans are a great way to generate needed employer deductions and tax-deferred savings for the employee.

Plans to consider for 2024 are:

• Profit sharing
• Money purchase pension
• SEP
• 401(k)
• S-corp ESOPs
• C-corp ESOPs
• Cross-tested plans

We can assist you in the implementation of these plans. For more information, contact Karlie Johnson, Employee Benefits Specialist, at kjohnson@redpathcpas.com. The benefits plan dollar limits for 2024 and 2025 are highlighted below.

IRS Benefit Plan Dollar Limits (Adjusted for cost-of-living increases)

Employee W-2 Form Reporting Requirements

You are required to file electronically when your information return filings exceed nine in aggregate. This includes W-2s, 1099s, 1095s, and more. For example, if you are filing seven W-2s, two 1099-NECs, and one 1099-MISC, all must be filed electronically. The IRS considers failure to file electronically when required as the same as failure to file, subject to the penalties outlined below.

The IRS requires specific information on W-2 Forms. Failure to comply with IRS reporting requirements can result in the assessment of penalties for non-compliance.

Following is a general list of items that must be included in various boxes on the 2024 W-2 Forms, in addition to normal wages and compensation:

• Disability or sick pay paid by third-party payers.
• Disability or sick pay not included in income.
• The value of employer-paid group term life insurance in excess of $50,000 per year.
• The value of other employer-provided life insurance is generally taxable as wages.
• The value of employer-provided disability insurance may be taxable. Talk to your client manager to determine which rules apply.
• Employee deferrals to salary reduction retirement plans. (SIMPLE, 401(k), etc.)
• Reimbursed employee business expenses in excess of amounts substantiated.
• Allocated tips.
• Amounts paid for qualified adoption expenses.
• The value of the personal use of an employer-provided vehicle.
• Employer contributions for qualified long-term care services provided through a flexible spending or similar arrangement.
• Elective deferrals and designated Roth contributions.
• Dependent care plan benefits.
• Archer Medical Savings Account contributions.
• Employer contributions to Health Savings Accounts, including employee deferrals through a cafeteria plan.
• Benefits under a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).
• Distributions, deferrals, and vesting of nonqualified deferred compensation plans.
• Qualified Equity Grants with deferred compensation under Section 83(i) and amounts includable in gross income.
• Cash and non-cash fringe benefits including benefits provided to 2% or greater shareholders (or related employees) of an S-corporation.
• Moving expense reimbursement. (military only)
• Bicycle commuting reimbursement.
• Sick leave wages paid under FFCRA.
• Federal electronic reporting required when filing 10 or more aggregate Federal information returns. Visit ssa.gov/employer for information about filing your W-2s electronically.
• Minnesota electronic reporting. E-filing is required if you have more than 10 W-2s.

State Annual Filing Requirement

Minnesota and many other states have annual filing requirements for companies registered to conduct business in their state. For states with a filing requirement, businesses need to file an annual report or renewal with the Secretary of State. This filing requirement is separate from your income tax filing. Since each state has different deadlines and registration fees, it’s important to have a system to prompt filing as required throughout the year to keep your company in good standing. Minnesota’s annual renewal is due by December 31, 2024.

If you’d like assistance with your annual filing requirements, please contact Teri Grahn, CMI, at tgrahn@redpathcpas.com.

Minimum Wage Law for
Minnesota and Wisconsin

The Federal minimum wage to be paid by covered employers is currently $7.25/hour. In cases where an employee is subject to both the State and Federal minimum wage laws, the employee is entitled to the higher of the two minimum wages.

Minnesota (as of January 1, 2025)

New in 2025, Minnesota’s minimum wage for all ages and all businesses is $11.13 per hour. The lower minimum wage for younger workers and small businesses has been eliminated. Employers with employees working within the boundaries of Minneapolis and St. Paul have additional minimum wage requirements.

Wisconsin

Wisconsin’s minimum wage is $7.25/hour and $2.33/hour for tipped employees. These are reduced to $5.90/hour and $2.13/hour for opportunity employees. An opportunity employee is an employee who is not yet 20 years old and who has been in employment status with a particular employer for 90 or fewer consecutive calendar days from the date of initial employment.

For more information visit www.dwd.wisconsin.gov or www.doli.state.mn.us.

Minnesota Earned Sick and
Safe Time (ESST)

Minnesota’s law requiring paid sick leave took effect statewide on January 1, 2024. Refer to the Minnesota Department of Labor and Industry’s website (https://www.dli.mn.gov/sick-leave) for more information.

Household Employee Requirements

You have a household employee if you hired someone to do household work, and that worker is your employee. If you can control the work (i.e. when it is done, how it is done), then the individual would be treated as your employee. Household work can include caretakers, cooks, housekeepers, nannies, and yard workers to name a few.

Nanny share arrangements will require each family using the nanny to report and file for each individual family’s wages paid. In addition, families that utilize a tutor for distance learning will not meet the definition of household work even though services may have been performed in an individual’s home. See IRS Publication 926 for more examples and definitions regarding workers who are not your employees.

For 2024, if you paid cash wages of $2,700 ($2,800 in 2025) to any one household employee you need to withhold and pay Social Security and Medicare Taxes. Special wage rules apply for Federal Unemployment tax and requirements to report to State Unemployment tax. W-2 reporting is also required if the $2,700 threshold in Social Security and Medicare wages was met or you withheld federal income tax from wages paid.

For assistance regarding household employer rules, please contact Melissa Doumbia, CPP at mdoumbia@redpathcpas.com.

S Corporation - Special Fringe Benefit Reporting Rules

A fringe benefit is a form of pay for the performance of services. For example, you provide an employee a fringe benefit when you offer to pay a portion of their health insurance premiums. Any fringe benefit you provide is taxable and must be included in income unless the law excludes it.

There are many cases where the law excludes the employer-paid fringe benefit from income for regular employees. However, this exclusion does not always apply to greater than 2% shareholders of an S-corporation and any individual related to that owner through attribution rules (including spouse, children, grandchildren, and parents).

The following benefits, if paid by the company on behalf of greater than 2% owners, are considered taxable compensation:

 Not subject to Social Security and Medicare*:

• Health Insurance
• Dental Insurance
• Disability Insurance**
• Employer HSA Contributions

Subject to Social Security and Medicare:

• Section 119, Excluded meals and lodging
• Section 79, Group term life insurance
• Section 120, Group Legal Services
• Personal Use of employer-provided vehicles
• Non-Group Life Insurance

All of the above benefits are subject to applicable Federal and state withholding taxes. See individual state guidelines for more information. Important Note: Partners and greater than 2% shareholders of an S-corporation (including related individuals) are prohibited from participating in cafeteria plans. This includes health insurance and HSA deductions done through payroll. The benefit, if set up as a payroll deduction, should be set up after tax for greater than 2% shareholders and related individuals.

* Premiums must be pursuant to a company plan (a plan or system for employees or classes of employees).

** Insurance premiums subject to tax for Federal and State income purposes to avoid taxation of benefits are also subject to Social Security and Medicare Tax.

Employer-Provided Health Coverage Informational Reporting

The Patient Protection and Affordable Care Act of 2010 required employers to report the cost of coverage under an employer-sponsored group health plan beginning with 2012 W-2 Forms, but most employers met the transitional relief rules making reporting optional and not requiring them to report the costs. The most common transitional relief rulemaking reporting optional applies to businesses that filed fewer than 250 W-2 Forms in the prior year. To date, no further guidance has been provided. The transitional relief rules applying to 2012 W-2 forms still apply to 2024 W-2 forms employers provide to employees in January 2025.

For employers with greater than 250 Form W-2’s, see the Employer Shared Responsibility page on IRS.gov or contact Melissa Doumbia, CPP at mdoumbia@redpathcpas.com.

The information provided in this document does not constitute legal, accounting, or financial advice and is offered as a source of information only. Those seeking specific advice should contact a professional advisor. Laws, rules, and regulations can vary widely based on the specific facts involved. Given the changing nature of laws, rules, and regulations, the information in this document is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax, or other professional advice and services. It should not be used as a substitute for consultation with professional accounting, tax, legal, or other professional advisors. Redpath and Company is not responsible for any errors or omissions, or for the results obtained from the use of this information.