November 2024 Compliance Updates: Federal Updates and New State Taxes

Federal Updates

Internal Revenue Service (IRS)

The IRS has increased contribution limits for retirement plans starting January 1, 2025

• Sections 401(k), 403(b), and 457 will increase to $23,500
• Defined contribution plans will increase to $70,000
• SIMPLE plans will increase to $16,500

Additionally, catch-up contribution limits for employees age 50 or over remain unchanged:

• The limit for 401(k), 403(b), and 457 plans is $7,500
• The limit for SIMPLE plans is $3,500

A higher catch-up contribution limit applies to employees who reach age 60 through 63 in 2025

• $11,250 for 401(k), 403(b), and 457 plans or
• $5,250 for SIMPLE plans

The IRS also increased the dollar thresholds for employees to be considered highly compensated or key employees in a top-heavy plan. Highly compensated employees must earn at least $160,000 annually, up from $155,000. A key employee in a top-heavy plan must earn at least $230,000 annually, up from $220,000. The IRS uses these definitions to ensure that qualified retirement plans benefit employees equally.

The compensation threshold for control employees for fringe benefit valuation purposes will increase to $140,000, from $135,000. If an individual is considered a control employee, the employer must use a specific IRS rule to determine the commuting value of an employer-provided vehicle used by the employee.

FUTA Credit Reduction – 2024

States that are charged with a FUTA credit reduction: California, New York & Virgin Islands.

New Tax Updates

Delaware – Paid Family Leave

ETA: Contribution begin January 1, 2025; Benefits begin January 1, 2026           

Between Sept. 1 and Dec. 1, 2024, employers will be expected to either opt in to Delaware Paid Leave or get private-plan approval. 

Participating in Delaware Paid Leave is mandatory for most businesses with 10 or more employees working in Delaware.

More information to come as the contribution date approaches.

Delaware Paid Leave Is Coming - Delaware Department of Labor

Maine – Paid Family Leave

ETA: Contribution begin January 1, 2025; Benefits begin May 1, 2026

Employers with 15 or more employees are required to participate in the program.

Contribution rate: 1%

Employers are allowed to charge 0.5% to the employees and remit the other 0.5%. Employers must notify their employees before withholding begins.

Registration: In January 2025, all employers will be required to register in the Paid Leave Portal. Payroll service providers can be designated during the registration process.

State Updates

California

Cannot Require Employees to Use Vacation Before Receiving Paid Family Leave (AB 2123)

Effective January 1, 2025, employers will no longer be allowed to require employees to use up to two weeks of accrued vacation before receiving paid family leave benefits.

State Disability Insurance

The CA SDI rate will be increasing to 1.2% effective 1/01/2025

Contribution Rates, Withholding Schedules, and Meals and Lodging Values

Iowa

Withholding

Starting in 2025 Iowa is offering a flat rate percentage for withholding tax. The 2025 withholding flat tax rate will be 3.8%, but the standard deduction amount will depend on which version of the state’s withholding certificate an employee has filed.

The amount of the standard deduction will depend on an employee’s filing status instead of the amount of state allowances claimed.

If an employee has filed the Form IA W-4 from 2024 or later, the 2025 standard deduction is as follows:

• $24,050 if the employee is a qualified surviving spouse or is married filing jointly without the spouse having earned income.
• $18,050 annually for heads of households
• $12,000 annually for the “other” status on Form IA W-4 and for employees who are married filing jointly with the spouse having earned income. The “other” status includes single employees

For employees who have filed the Form IA W-4 from 2023 or earlier, the standard deductions are:

• $24,050 for married employees
• $12,000 for single employees

The updated Iowa Withholding certificate has not yet been published by the agency. This will likely be available in December. ProLiant will continue to monitor agency updates for the updated form.

IAWithholdingTablesInstruction-TY2025.pdf

Kentucky

Withholding

The withholding tax rate remains 4% for 2025 tax year. Standard deduction has increased to $3,270. The updated withholding certificate will be available for employees beginning in 2025.

2025 KENTUCKY WITHHOLDING TAX FORMULA

Washington

Paid Family Leave

Effective January 1, 2025, the WA Paid Family Medical Leave tax rate will be updated to 0.92% from 0.74%. The wage base limit will be set at $176,100.

Paid Family & Medical Leave premiums to increase in 2025 | Employment Security Department