Payroll Updates and Important Information for 2025

Article | December 06, 2024

If you are a business owner, whether or not you have employees, below is important information that could affect your business during 2025. As always, Isler is here to help you navigate through the often-muddy waters of payroll and 1099 reporting. As you read through this information, make a note of anything that you think may affect you and ask your tax professional if you have any questions.

General Information 

•  This is the time of year that many business owners give bonuses and gifts to their employees. Please remember that any bonuses (including gift cards) over $25 must be reported as wages to the employee.
• Shareholder Medical premiums – if you have not already done so, please make sure your payroll provider has the correct amount of Shareholder Medical premiums on your payroll. The IRS requires Shareholder medical premiums to be included in wages in order for the company to take a deduction. For business owners on Medicare, these premiums can be considered Shareholder medical premiums. Talk to your tax professional if we have not previously included these in your payroll.
• Employee/Owner fringe benefits – Many fringe benefits given to employees and/or owners must be reported as wages. These taxable fringe benefits can include gym memberships, personal use of company automobile, health insurance premium assistance in lieu of company-provided health insurance, etc. It is important to talk to your tax professional if you have any questions about these types of benefits.

Federal Updates

• Meals and Entertainment
  • Beginning January 1, 2023, restaurant meals returned to being 50% deductible
  • Entertainment expenses continue to be non-deductible.
• Bonus Depreciation:
  •  Starting January 1, 2024, Bonus depreciation will only be allowed at 60% of cost for eligible asset purchases.
    • This percentage will decrease to 40% in 2025, and 20% in 2026. December 31, 2026, bonus depreciation is set to expire completely. Stay tuned for possible changes to these rules after the new Congress is in place.
• Employee Retention Credits
  • In September 2023, the IRS placed a moratorium on processing any new or pending ERC requests. Processing resumed in June of 2024. Due to the increased scrutiny of all applications, processing times have been very slow.
  • If you have received a determination letter stating that you are not receiving the full ERC amount requested, or that you are ineligible for the credits, please reach out to your tax preparer and provide them with a copy of the notice.
• Minimum Salary Update
  • On November 15, 2024 the Federal court threw out the Department of Labor’s 2024 Exempt Salary rule, which had increased the minimum salary for exempt employees. Exempt employees include those employees receiving a monthly salary instead of hourly wages.
  • The minimum weekly salary reverted back to the pre-2024 amount of $684 per week.
  •  If you were affected by the 2024 Exempt Salary Rule, and would like to find out more information, here is a link to the DOL website where you can get more information: Bureau of Labor
• Employee Forms W-4 and I-9
  •  Employers are required to have forms W-4 and I-9 on file for all employees. Oregon has its own form W-4 that you should have on file as well. Each form must be signed by the employee in order for it to be valid. Electronic signatures are not allowed. At this time of year, it is a good idea to check your records for these forms. Here are links to all three forms that you can download and have your employees fill out:
    •  IRS Form W-4
    • Oregon Form W4
    • Form I-9, Employment Eligibility Verification
• Social Security/Medicare
  • Wage Base increasing
    • The maximum 2025 earnings that are subject to Social Security tax is increasing from $168,600 to $176,100
    • The maximum employee Social Security tax will be $10,918.20
  • COLA increase for SS benefits for 2025 is 2.50%
  • No changes to Medicare hospital insurance tax. It will stay at 1.45% with no wage limit
  • Additional hospital insurance tax mandatory withholding of 0.9% on wages over $200,000.00 remains unchanged for 2025
• Retirement contribution limits (see IRS Notice 2024-80) for more information
  • 401(k) increasing from $23,000 to $23,500. Catchup contributions for 50 and older remain at $7,500
  • Traditional IRA contribution limits will remain the same as 2024 at $7,000. Catchup remains at $1,000
  • ROTH IRA – income phaseout for contributions increasing
    • Single and Head of Household
      • New phaseout between $150,000 and $165,000
    • Married Filing Joint
      • New phaseout between $236,000 and $246,000
  • SIMPLE IRA contribution limit increasing from $16,000 to $16,500.
• Forms 1099-NEC and 1099-MISC
  • NEW IRS electronic filing requirements mean more businesses will have to e-file 1099s. Businesses that file 10 or more information returns (W2s are included in this) must now file them electronically. Previously this was 250.
  • It is important to determine whether or not you are required to file forms 1099 each year. You must assert on your business tax return (and on your personal income tax return if you have rental or self-employment income) whether or not you have made payments of $600 or more to any person or business that is eligible for 1099 reporting.
  • The IRS requires business owners to retain Form W-9 for each entity that provides services to the business, even if they do not reach the $600 threshold for reporting on a 1099. The best practice for business owners is to require vendors who provide services to provide a signed Form W-9 BEFORE the vendor is paid.
  • Failure of payee to provide a TIN (W9 or equivalent), the payer must perform backup withholding. Current backup withholding rate is 24% for 1099 reportable payments.

Isler’s Client Accounting Services department can help you with filing these forms. Please let your tax professional know if you would like us to prepare these for you.

For more information on how to file forms 1099-NEC and 1099-MISC, see the following IRS instructions: IRS instructions for Forms 1099-NEC and 1099-MISC

Oregon Updates 

• State Unemployment (SUTA) rate changes
  • The taxable base SUTA rate for new employers will remain at 2.4% in 2025. You should have already received your notice from the Oregon Employment Department with your company’s new rate. Remember to give your payroll professional a copy of the notice as soon as possible.
•  Oregon Statewide Transit tax is unchanged at .1% (.001) for 2025
• Lane Transit tax has increased from .79% (.0079) in 2024 to .80% (.0080) for 2025
• Tri-Met tax is increasing from .8137% (.008137) in 2024 to .8237% (.008237) in 2025

Oregon Employment Law – Overtime for Agricultural Workers

Employers are required to pay workers one and one-half times their hourly wage for hours worked over 40 in one week. Historically agricultural workers have been exempt from the overtime rules. Legislation passed in 2022 put a cap on straight-time hours for those workers; beginning in 2023 that cap was 55 hours. For 2025, the cap on straight-time hours for agricultural workers is further reduced to 48 hours. In 2027, the exemption is going to be completely removed, meaning agricultural workers will be paid overtime for all hours over 40 in one week.

City of Eugene Community Safety Payroll Tax

All employers who have a physical business location within the Eugene city limits are subject to the City of Eugene Safety Payroll Tax. The tax is paid partially by the employer and partially by the employees. To find out more about this tax or to check on your business’ subjectivity, please click on the link below.

https://www.eugene-or.gov/4281/Community-Safety-Payroll-Tax

Paid Family Leave Oregon

The State of Oregon has put out an Employer Guidebook that walks through the details of this tax. Please follow this link: Paid Leave Oregon Employer Guidebook and read through it for more information. There are also other helpful resources on the Paid Leave Oregon Website found here: https://paidleave.oregon.gov/

IMPORTANT:

Every employer also needs to post a notice about PLO in their workplace. Oregon has provided a model that can be accessed and printed here: Model Notice Poster

Who must participate?

All employees who work in Oregon. Even if an employee lives in another state, if they work in Oregon, they are subject to PLO. This does not include employees who live in another state and work remotely for an Oregon employer. They must physically work in Oregon to qualify.

Who is exempt from PLO?

• Federal employers and employees
• Tribal governments and employees
  • However, the employees of tribal governments may choose to participate
• Self-employed individuals/independent contractors
  • However these persons may choose to participate.
• Small employers (those with less than 25 employees) are NOT required to withhold the EMPLOYER portion of the contributions. However, the EMPLOYEES are still required to contribute
• Employers who have an approved equivalent plan can opt out of PLO. However, the equivalent plan must offer benefits that are at least equal to PLO benefits.

How much is the contribution rate?

• The rate for 2025 is 1% of the first $176,100 of each employee’s gross wages less pre-tax benefits.
  • Of this 1% rate, the employee pays 60% and the employer pays 40%.
  • The employer portion is not required if less than 25 employees. In that case only the employee portion is contributed.
• Employers may opt to pay both the employer and employee portion of the contribution if they wish.
• These rates are set to be adjusted each year

What are the requirements for reporting and paying the PLO contributions?

•  Contributions are due and payable with the quarterly Oregon payroll reports. (Domestic employers may file and annual report)
• No special registration is necessary. The reporting will be integrated with the Oregon Quarterly Payroll reports

Special assistance grants are available for eligible small employers, as long as they commit to paying both employer and employee contributions for two years.

When do employees become eligible to participate in PLO?

• Employees who have earned at least $1,000 in wages in base year and have paid contributions during the base year are eligible to receive benefits.

Please do not hesitate to reach out to your CPA for any questions related to the information provided.

Isler CPA

541-342-5161