4 Main Payroll Tax Modifications to Count on in 2023 (+ Guidelines)

2023 Payroll Tax Changes BP_1200x675

Costs within the US are hovering. In reality, in 2022, costs elevated sooner than they ever did within the final 40 years. Fortuitously, the federal authorities has introduced some particular person payroll tax changes for the yr 2023, which can assist alleviate the results of excessive inflation to some extent. The federal authorities declares these payroll tax adjustments — primarily regarding wage caps, earnings tax brackets, and non-taxable contributions — yearly to regulate to financial circumstances. Learn to the top for our downloadable Payroll Tax Modifications Guidelines for 2023.

As an employer, it is your accountability to maintain up with these adjustments and tweak your payroll to stay compliant — and keep away from hefty penalties. In 2023, it’s essential to account for the next 4 main payroll tax adjustments.

1. Social Safety Wage Base Will increase by Practically 9%

The social safety wage base — the utmost earnings topic to social safety tax — will improve from $147,000 to $160,200 beginning January 1, 2023. This improve will mirror an almost 9% soar. The Social Safety Administration (SSA) introduced this transformation in taxable earnings in October 2022 to regulate to the rise in nationwide common wages. Consequently, social safety advantages will improve by greater than $140 per thirty days.

Whereas that is nice information for social safety beneficiaries, high-income earners (i.e., these whose earnings exceeds $147,000) will take house smaller paychecks.

The 6.2% social safety tax fee — the bigger a part of the Federal Insurance coverage Contributions Act (FICA) fee of seven.65% — will stay unchanged. At most, an individual can pay $9,932.40 ($160,200 x 6.2%) in social safety tax in 2023.

Medicare taxes will proceed to not have a most wage cap, and the withholding fee of 1.45% (for each the workers and the employers) will stay unchanged. Subsequently, workers that climb the taxable earnings brackets in 2023 must pay extra. Moreover, an worker whose taxable earnings exceeds $200,000 will proceed to pay an extra Medicare tax of 0.9%.

How You Ought to Put together for this Change

In case you’re an employer, it’s essential to first talk the brand new wage cap for social safety taxes to each worker in your payroll, no matter how a lot they earn. Ideally, this needs to be accomplished earlier than they get their first paychecks of 2023. The HR division can do that with a company-wide memo.

Invite your workers to ask questions through electronic mail or by way of an informative session about how this can have an effect on their pay, to allow them to begin planning forward.

Subsequent, proactively replace your payroll system to mirror the upper wage cap for the social safety tax. Converse to your service supplier about this transformation in the event you don’t do payroll internally to make sure they’re up-to-date. As an example, Inova HCM will mechanically alter calculations based mostly on these adjustments.

2. Federal Revenue Tax Bracket Thresholds Enhance by Nearly 7%

The federal authorities helps taxpayers alter to inflation by elevating earnings tax bracket thresholds — the earnings ranges tied to the completely different tax charges. For 2023, the IRS has determined to extend the federal tax thresholds by virtually 7% for each bracket.

Listed here are the highlights of how the earnings tax brackets have modified for single-filers and joint-filers (supply: IRS).

Tax Charges

2023 Taxable Revenue Brackets

2022 Taxable Revenue Brackets


$0 to $11,000 ($0 to $22,000 for married {couples} who file collectively) 

$0 to $10,275 ($0 to $20,550 for married {couples} who file collectively)


Above $11,000 to $44,725 (above $22,000 to $89,450 for married {couples} who file collectively)

Above $10,275 to $41,775 (above $20,550 to $83,550 for married {couples} who file collectively)


Above $44,725 to $95,375 (above $89,450 to $190,750 for married {couples} who file collectively)

Above $41,775 to $89,075 (above $83,550 to $178,150 for married {couples} who file collectively)


Above $95,375 to $182,100 (above $190,750 to $364,200 for married {couples} who file collectively)

Above $89,075 to $170,050 (above $178,150 to $340,100 for married {couples} who file collectively)


Above $182,100 to $231,250 (above $364,200 to $462,500 for married {couples} who file collectively)

Above $170,050 to $215,950 (above $340,100 to $431,900 for married {couples} who file collectively)


Above $231,250 to $578,125 (above $462,500 to $693,750 for married {couples} who file collectively)

Above $215,950 to $539,900 (above $431,900 to $647,850 for married {couples} who file collectively)


Above $578,125 (above $693,750 for married {couples} who file collectively)

Above $539,900 (above $647,850 for married {couples} who file collectively)

Take a look at this IRS useful resource to see how the tax charges have modified for different submitting statuses not listed above. 

Typically talking, workers will be capable to take bigger paychecks house in 2023 on account of being positioned in decrease brackets. Nevertheless, some high-income earners received’t see a lot distinction as they’ll pay extra in social safety taxes.

How You Ought to Put together for this Change

Alter your payroll programs to account for these new brackets, and encourage workers to do their due diligence to make sure that they’re not overpaying. The IRS has an internet tax withholding estimator which can assist with that.

Remind workers concerning the new tax brackets earlier than the change goes into impact in order that they have ample time to plan for adjustments to their paychecks. Equally, anticipate workers to finish and resubmit their W-4 kinds, as the brand new thresholds will possible affect their monetary conditions.

3. Annual Contribution Limits for Retirement Plans Enhance

The IRS has introduced that it’s additionally going to broaden the annual contribution limits for varied retirement plans in 2023. An worker can defer a bigger quantity of their paycheck to those plans and scale back their taxable wages.

The annual limits for conventional 401K, 403B, 457, and the Thrift Financial savings Plan will improve from $20,500 to $22,500. Moreover, workers aged 50 years or above will be capable to make further catch-up contributions of as much as $7,500 in 2023 to those plans (up from $6,500 in 2022).  

Staff enrolled in Particular person Retirement Plans (IRAs) may also get a (comparatively smaller) sigh of reduction in 2023, as annual contribution limits are set to extend from $6,000 to $6,500. Nevertheless, the catch-up restrict for IRAs stays $1,000 because the IRS doesn’t alter it for the price of residing. But, workers enrolled in SIMPLE plans will now be capable to make catch-up contributions of $3,500 as a substitute of $3,000.

How Employers Ought to Put together for this Change

Inform workers concerning the new pre-tax contribution limits to retirement plans to allow them to alter their elective wage deferrals in due time. Take this step as quickly as attainable in case your plan(s) solely permit the members to alter their contributions in the course of the open-enrollment season.

Accommodate workers who wish to improve their elective deferrals to profit from the upper contribution restrict. If a third-party acts because the plan administrator, be sure that they supply your workers with all the help they should alter their contributions. Lastly, make sure that your payroll system processes taxable incomes adjusted for newly elected deferrals (if relevant).

4. Annual Contribution Limits for Well being Financial savings Account (HSA) Enhance

The IRS additionally introduced that it’s going to extend the annual contribution limits for HSAs in an effort to cancel out the results of excessive inflation. Based on the Income Process 2022-24, the adjustments to contribution limits are as follows:

  • $3,850 for an individual with self-only protection (up from $3,650 in 2022)
  • $7,750 for an individual with household protection (up from $7,300 in 2022)

Take into account that the above annual limits embrace contributions from each the workers and the employers. This modification quantities to a close to 5 to five.5% improve in contribution limits for each coverages from 2022. For comparability, the annual contribution limits for HSAs solely elevated by about 1.4% between 2021 and 2022.

Staff could have the prospect to contribute a barely bigger quantity to their HSAs to scale back their taxable earnings. Though the distinction isn’t that vital, each greenback saved counts in these harsh financial circumstances.

How You Ought to Put together for these Modifications

Be ready to make any adjustments to how a lot workers select to defer to their HSAs. Tweak your payroll system to make sure the brand new changes are accounted for.

Contemplate contributing to your worker’s HSAs in the event you haven’t already. These contributions are additionally thought-about pre-taxed and may subsequently assist scale back the payroll tax you pay as an employer.

Overwhelmed? Obtain Our Payroll Tax Modifications Guidelines for 2023!

It’s robust maintaining with so many payroll tax adjustments — and it’s particularly robust in the event you run a small HR staff and do every thing your self. We’ve ready a guidelines that summarizes all of the payroll tax adjustments for 2023 in a really concise approach.

Our guidelines not solely goes over the primary, high-level updates but in addition consists of good-to-know actionable recommendation you can begin implementing instantly. Obtain and share along with your colleagues at present!

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