In 2025, there are several updates to various payroll tax withholding limits, including Social Security tax and 401(k) elective deferrals. For employees, the minimum wage is increasing in Missouri and Illinois. Below, we highlight any payroll tax and withholding updates or consistencies for 2025 that employers and employees should be aware of.
Social Security Tax Withholding
For 2025, the Social Security tax wage base for employees will increase to $176,100. The Social Security tax rate for employees and employers remains unchanged at 6.2% on wages up to $176,100. Medicare tax will also apply to all wages and will be imposed at a rate of 1.45% for both employees and employers. The combined Social Security and Medicare tax rate for employees and employers remains unchanged at 7.65% each.
The earnings base for self-employment tax will also increase to $176,100 with an effective rate of 15.3%. On self-employment income in excess of $176,100 Medicare tax will continue to apply at a rate of 2.9%. No self-employment tax is payable if annual net earnings are less than $400.
Additional Medicare Tax Withholding
All wages, including self-employment, which exceed $200,000, are subject to an additional Medicare tax of 0.9%. There is no employer share of this additional Medicare tax.
Federal Unemployment Tax (FUTA)
For 2025, the maximum taxable wage base remains unchanged at the first $7,000 of wages. The tax rate will remain at 6% with the credit for payment of state unemployment tax remaining at 5.4%. This results in the effective rate remaining at 0.6%.
State Unemployment Tax (SUTA)
The taxable wage base for Missouri will change to $13,916 and Illinois will change to $13,271 for 2025. Each state will issue your new contribution rate, effective January 1, 2025, based on your employment history. If advantageous, Missouri permits a voluntary payment to reduce the rate if the payment is received by January 15, 2025.
Both states require employers, who no longer have unemployment tax liability, to close their unemployment accounts formally. Severe penalties accrue if quarterly reports are not filed, and accounts are not formally closed – even if no unemployment tax liability exists.
Some states may require online filing unemployment reports and electronic payment of the taxes due.
New Missouri State Paid Leave
Effective May 1, 2025, eligible employees will accrue a minimum of one (1) hour of paid sick leave for every 30 hours worked. Employers with at least 15 employees may limit employees to using 56 hours of paid sick time each year. All other employers may limit employees to using 40 hours of paid sick time annually.
The new law applies to all private employers in Missouri. However, certain employees are
excluded from coverage, including those engaged in educational, charitable, religious, or
nonprofit activities; persons standing in loco parentis to foster children in their care; employees in retail or service businesses with annual gross sales below $500,000; and incarcerated criminal offenders.
Employers may elect to provide paid sick time as it is accrued or frontload all the earned paid sick time that an employee is expected to accrue in a year at the beginning of the year.
Employers are encouraged to seek counsel on implementing policies and procedures in relation to this new law.
Nanny Tax Threshold
The 2025 annual earnings threshold above which an employer is required to pay FICA taxes and issue Form W-2 to domestic workers will be $2,800. Form W-2 may not be issued to a household employee below this threshold amount. However, if you paid cash wages to household employees totaling more than $1,000 in any calendar quarter during the calendar year or prior year, those wages are subject to federal and state unemployment tax.
Employers may have to satisfy their personal tax obligations for the domestic employee taxes by either increasing W-2 wage withholding or making 1040 estimated tax payments to prevent the application of underpayment penalties.
Information Returns
Failure to file accurate and timely 1099 forms continue to carry severe penalties ($60 to $300 per form). The penalty for intentional disregard of filing requirements is at least $660 per information return with no maximum penalty. Accordingly, we are reminding you of the filing requirements for payments made during 2024.
Among other requirements, an entity must report on Form 1099 payments of $600 or more to non-corporate “service providers.” This includes rent, fees, commissions, prizes, awards, or any other form of remuneration paid to non-employees. An example would be a consultant who is not incorporated. Payments made for legal services must be reported even if the payment is made to the attorney’s professional corporation. Any dividend or interest payment to a non-corporation of $10.00 or more must be reported to the Internal Revenue Service (IRS) and the recipient.
For 2025 reporting, form 1099-NEC is to be used to report non-employee compensation. The 2025 Form 1099-NEC must be given to the recipient and sent to the IRS, using either paper or electronic filing procedures, by January 31, 2026. For payments other than non-employee compensation, these will continue to be reported on the 1099-MISC. For form 1099-MISC, the due dates to the IRS are February 28, 2026, if you file on paper or March 31, 2026, if you file electronically, but the due date to the recipient remains January 31, 2026.
Taxpayers are asked to certify the filing of Form 1099 in conjunction with filing their annual income tax returns.
Minimum Wage
The Missouri minimum wage will increase to $13.75 per hour on January 1, 2025. The Illinois minimum wage will increase to $15.00 per hour on January 1, 2025.
New employees under the age of 20 may be paid less than the stated minimum wage, though the wage must not be lower than $4.25 per hour during their first 90 consecutive calendar days of employment with an employer. Employers of “tipped employees” must comply with minimum wage laws but can claim a tip credit against their minimum wage obligation.
Form W-4
Form W-4 is available at https://www.irs.gov. Forms W-4 must be available for inspection by an IRS employee if requested. Employers may receive requests from the IRS requiring submission of a copy of Form W-4 for one or more employees.
Missouri Form W-4
The employer must send a copy of Form MO W-4 to the Department of Revenue within 20 days after any new employee completes the form. This information is being used to enforce the state’s child support laws. The forms are available at http://dor.mo.gov/forms/.
Unsubstantiated Business Expenses or Advances
An employee is required to substantiate expenses to an employer under an accountable plan and any amount exceeding the amount substantiated must be returned to the employer. Unsubstantiated amounts must be reported as Form W-2 (and FICA) income. In a non-accountable plan, all expense payments to employees are treated as wages.
Tax Deposits
The IRS has two deposit schedules—monthly and semi-weekly—for determining when to deposit Social Security and Medicare taxes and withheld federal income tax. The required schedule is determined by the employer’s tax liability during a “look-back” period (July 1 to June 30 of the previous year). Employers with less than $50,000 of deposit liability during the “look-back” period are assigned a monthly schedule and will be required to make a deposit on or before the 15th of the following month.
Employers who report $50,000 or more in total employment tax liability during the “look-back” period will be designated as semi-weekly depositors. For semi-weekly depositors, the due date depends on when wages are paid. For paydays on Wednesday, Thursday, or Friday, the deposit is due on or before the following Wednesday. For paydays on Saturday, Sunday, Monday, or Tuesday, the deposit is due on or before the following Friday.
Accumulated federal withholding, Social Security and Medicare taxes of $100,000 or more in one single day must be deposited the next business day, whether you are a monthly or semi-weekly schedule depositor. If you are a monthly schedule depositor and accumulate a $100,000 tax liability on any day, you become a semi-weekly schedule depositor on the next day and remain so for the rest of the calendar year and for the following calendar year.
Electronic Federal Tax Payment System (EFTPS)
Employers must make deposits electronically. If your required tax deposits are not made via EFTPS, a penalty of 10% of the taxes deposited will be incurred. The IRS has begun enforcing penalties for non-compliance. If you have not enrolled in the EFTPS program, please contact us immediately.
Social Security Benefits
You can continue to earn income while receiving full Social Security retirement benefits, provided your earnings do not exceed certain limitations. The 2025 yearly earnings ceiling for individuals who have not reached normal retirement age will increase to $23,400. Benefits of $1 will be lost for every $2 earned above the annual limit.
For recipients who reach normal retirement age in 2025, the earnings limit is $62,160 until the month the individual reaches normal retirement age. Benefits of $1 will be lost for every $3 earned above the annual limit. Once you reach normal retirement age, you can collect full benefits, regardless of the amount of your earnings.
Standard Mileage Rate
The standard mileage rate for 2025 will be 70.0 cents per mile for business travel. The 2025 rate for medical travel and moving costs will be 21 cents per mile. The charitable mileage rate will remain at 14 cents per mile.
Earned Income Credit
Each employer is required to notify any employee who has not had income tax withheld from wages and who has not claimed to be exempt from withholding that they may be eligible for the earned income credit. If W-2’s aren’t supplied on time, then a notice must be given by hand or delivered by first-class mail before the Form W-2 is furnished. The notification must contain all information described in Notice 797 from the IRS.
Pension Distribution Withholding Rules
If an employee does not elect a direct rollover (a trustee-to-trustee transfer), the employer must withhold federal income tax from the distribution at a 20% rate. The rules contain some exceptions to the general rule stated above. Please contact us to discuss these rules in greater detail if a pension distribution is forthcoming.
401(k) Elective Deferral Limits, SEP, and SIMPLE Plan Thresholds
The limitation on 401(k) elective deferrals in 2025 will increase to $23,500. The catch-up contribution limit for employees aged 50 and over who participate in the 401(k) will remain at $7,500.
With a SEP IRA, an employer can contribute the lesser of, 25% of an employee’s gross annual salary or $70,000. An employee must earn at least $750 to be a SEP IRA participant.
The maximum employee salary reduction contribution to a SIMPLE plan cannot exceed $16,500 in 2025. The catch-up contribution limit for individuals aged 50 and over who participate in the SIMPLE plan remains unchanged at $3,500.
New-Hire Reporting Program for Missouri and Illinois
All employers must report information about any new employee to the appropriate state agency within 20 days of their date of hire. This is a federal regulation, and states may establish more stringent reporting requirements. The new-hire reporting regulations were enacted to help state agencies enforce child support orders.
Your new-hire reports must contain the employee’s name, address, and Social Security number as well as your company’s name, address, and federal identification number. To comply, you can file a Form W-4 or an equivalent form. In Missouri, the penalty for non-compliance is $25, or if the failure is the result of a conspiracy between the employer and the employee, the fine will be $350. In Illinois, the penalty for non-compliance is $15.
You can mail new hire reports on paper, or on magnetic media, report by fax, or file online. For personnel employed in multiple states, you may choose one state where you have employees and report all new hires in that state.
Contact an Anders advisor below with any questions on how these amounts affect you.
