Restrictions on who can be Salaried vs. Hourly
Annual Payroll Newsletter
September 2024
By Tom Carson Jones, CPA, CGMA
Senior Member of the Firm
Effective 7/1/24, a salaried person must be paid at least $844 per week ($43,888/year). This increases to $1,128/week ($58,656/year) effective 1/1/25, and will adjust every three years with inflation.
In addition to this wage minimum, the employee must meet one of three “white collar” exceptions: executive, administrative, or professional employee. An employee can be paid a set “salary” if he/she never works more than 40 hours a week, and the salary is above minimum wage.
If you think this discussion sounds familiar, it is. The Obama Dept. of Labor proposed similar rules, but those rules were overturned by the courts just before Trump was elected. The new administration didn’t pursue those rules. This new rule was successfully challenged, but the postponement only applied to Texas.
Secure Act 2.0
More new rules become effective this year from the Secure 2.0 Act. The goal is to encourage retirement savings and urge small employers to offer retirement plans.
- Required Minimum Distributions (RMD) from retirement plans are delayed to age 73.
- Many of you have a Section 529-College Savings Plan for your kids (or grandkids). Beginning in 2024, beneficiaries of a 529 plan may transfer up to $35,000 of unused funds to a Roth IRA. There is “fine print” to this rule. This makes the 529 an even better savings vehicle for many of you.
- Enhancements to Qualified Charitable Distributions. At age 70½, you can send money directly from your IRA to your church/charity with some real tax advantages.
- Retirement plans SIMPLEs and SEPs can accept Roth pay-ins, and in some cases can have Roth-based employer matches.
- Starting in 2024, if you’re a small employer (25 or under eligible employees), limits for SIMPLEs rise by 10%. Larger employers can add 10% to the limits by making their match 4% instead of 3%. Limits for these in 2024 would be $17,600 under age 50 and $21,450 age 50+, plus the match.
- Starting in 2024, employers can make additional contributions to each employee, if the contribution does not exceed the lesser of up to 10% of compensation or $5,000.
- 2025: IRAs inherited by most non-spouses must be drawn out within 10 years using Required Minimum Distribution rules; the 10 year rule had already been in place
- 2025: Those over age 50 have had a higher “catch up” limit – extra you can put in during the year. Beginning in 2025, there is an second extra catch-up for ages 60-63 of $5,000.
- 2025: Any NEW plans will have auto enrollment for new employees (opt-out available). Existing plans and small employers won’t have this requirement (yet).
- JUST CHANGED, now effective 2026: For 401k (but not SIMPLE), the extra deposit to the 401k when over age 50 must be an after-tax Roth if annual compensation is over $145,000.
- 2027: Larger savers credit goes into effect. (This is a tax credit for lower income people putting money in retirement.)
Corporate Transparency Act (aka Beneficial Ownership Information or BOI)
This is not directly related to payroll, but it affects nearly everyone reading this. Beginning in January 2024, the U.S. Treasury requires all corporations, LPs, and LLCs to disclose their “real” individual owners and most senior officers of the company. This is NOT the same as the annual report you file with the Secretary of State, and is in addition to anything you file with the IRS. There are substantial fines for non-compliance. Your bank will likely require compliance if you have an account there.
Exempt are publicly traded companies and those that meet ALL these criteria: They have more than 20 employees AND report more than $5 mil in gross receipts AND have a physical office in the U.S. But most companies like that have affiliates that don’t meet those criteria.
Treasury will require an electronic a copy of your driver’s license or passport, among other requirements (or a pdf to SMJC if we prepare the BOI report). This may need to be updated if owners or senior management change – even if they move their personal address. There are provisions for the individual to have a FinCEN account with Treasury so your company doesn’t have that personal information.
Any entity formed after 1/1/24 must comply within 30 days; any existing entity must comply before 12/31/24. Updates are required when there are changes in ownership or senior officers. Through 6/30/24, less than 10% of expected reports had been filed.
SMJC will file BOI reports if clients request…about half our clients have been requesting.
Quick Hits
- Not payroll, but TN LLCs and corporations need to check if they are due a refund for 2020 to 2023 TN Franchise Tax. A retroactive change in the law has led to about 70% of our clients getting refunds. Hard deadline of 12/1/24 to request the refund. Check with us for planning opportunities going forward.
- Remote workers that work from a different state should have taxes withheld as an employee in their resident state (where they work). That could cause you to also file income tax returns for that state.
- Through 2025, employers can offer up to $5,250 in student loan repayment benefits – fully deductible to the employer and non-taxable to the employee. The “catch” is that it must be offered to all and can’t reduce their pay.
- Also available is that the employer can allow student loan principal paid to be used toward the employee contribution required for the match in retirement plans.
- A major focus of our payroll discussions for the last few years has been the Employee Retention Credit. The IRS has officially recognized that the program had lots of fraud – there are estimates that 60% of the late filed claims are fraudulent. Many claims filed in 2023 were purposely not processed by the IRS due to the high percentage of fraud. Good news is that eventually if your claim is approved, the IRS pays interest on the claim (currently 8%).
- Soon, the IRS will be requiring all payroll tax returns be e-filed. This may be an issue for our clients where we log onto your computer to prepare the payroll tax returns.
SMJC Updates
- We’re offering a second payroll processing platform to our clients. You’ll be able to download your info directly to this software if available, somewhat of a self-service option comparable to the national providers. This may be a less-expensive option for those who use direct deposit.
- Our new office on the Court Square in Trenton is now open, along with our existing office in Parsons. We look forward to serving even more clients through the area.
- SMJC staff prepares payrolls for clients in states as far away as Oregon and California in addition to local clients with TN and MS payrolls. We’d be happy to talk to you about options.
- WE LOVE REFERRALS!
Disclaimer: We produce this newsletter for our clients and others who are concerned about planning and managing their tax affairs. Each business or individual’s tax situation is unique, and the material in this newsletter is not intended to constitute specific accounting, tax, investment, or legal advice. This newsletter is a general overview of each topic and is not intended to be a substitute for specific advice, as the impact of items mentioned will not be the same for every taxpayer. Accordingly, where specific advice is necessary or appropriate, consultation with a competent professional advisor is highly recommended.
