As 2022 begins, employers need to be aware of some big changes to Connecticut payroll. Specifically, the changes to payroll for Connecticut in 2022 include an increase in payroll tax deductions, an update to Connecticut Paid Leave, as well as changes to 401k contribution limits and eligibility requirements.
Connecticut Federal Unemployment Tax Act (FUTA): 2022
Due to the impact of the COVID-19 pandemic, the state of Connecticut has accumulated outstanding federal loans for the past two years. As a result, Connecticut employers are subject to increased FUTA taxes until all federal loans are paid off by the state.
According to the Connecticut Department of Labor (CTDOL) the state's unemployment insurance trust fund was depleted back in August of 2020, and since then the state has been borrowing funds from the US Department of Labor. To date, Connecticut has borrowed around $725 million. Connecticut is one of nearly 20 states in a similar situation.
To combat the state's debt, FUTA tax increases will be applied directly to the outstanding federal loan balance. Employers may have already started seeing the FUTA tax increase, which began on January 1st, 2022. The FUTA tax increase was 0.3% and will be applied to payroll paid from the 1st, through December 31st of 2022.
What Does the FUTA Tax Increase Mean for Employers in 2022?
What this means, is that employers can expect to see an increase in their payroll taxes that approximately equal $21 per full-time employee per year. The calendar year 2022 tax return on the other hand, together with additional tax payments, will be due and payable in January of 2023.
Important to note is that the IRS will publish a list of FUTA credit reduction states in November 2022.
One thing that Connecticut employers will not have to worry about is the Connecticut Special Assessment this year. The Special Assessment is a supplemental bill that is levied against active Connecticut contributory employers in August of any year that the state accrues interest on the outstanding loan balance. However, considering the financial burden created by the pandemic, Governor Ned Lamont had authorized the state to pay the interest due on September 30, 2021. This eliminated the need for Connecticut employers to pay the Special Assessment this year.
Connecticut Paid Family Medical Leave Act Update
The Connecticut Paid Leave Authority recently discovered that there was an issue with the employer notification system for employee leave claim status updates. Employers were not being notified of status updates. Until the situation is resolved, employers can contact their employees or email CTPL.email@example.com with the employee’s name and claim number for status and approval updates.
Connecticut Paid Leave Catch-Up Period
The Connecticut Department of Labor has authorized a temporary catch-up period until March 31st.
During this time, employers may deduct an additional 1% from employee wages (for a total of 1.5%) to make up for contributions that they did not make in 2021.
After March 31, 2022, only the statutory 0.5% may be deducted.
401(k) Limit Increases for 2022
In early November of 2021, the IRS announced changes to 401(k) limits and planning. Changes were made to the amount individuals may contribute to their 401(k) starting in 2022. Now, employees may contribute up to $20,500, up from $19,500 in 2021.
The contribution limit applies for employees participating in:
- Most 457 plans
- Thrift Savings Plans
Income ranges also increased for determining eligibility for traditional Individual Retirement Arrangements (IRAs), Roth IRAs, and to claim the Saver's Credit. These ranges are referred to as "phase-out" ranges.
If the taxpayer or their spouse were covered by a retirement plan at work during the year, then the deduction may be reduced or phased out until it is eliminated. This depends on filing status and income.
(If neither the taxpayer nor the spouse is covered by a retirement plan at work, deductions do not apply)
The traditional IRA phase-out ranges for 2022 are:
- Single taxpayers (covered by a workplace retirement plan) - the new range is $68,000 to $78,000
- Married couples (who are filing jointly, and the spouse who is making the IRA contribution is covered by a workplace retirement plan) - the new range is $109,000 to $129,000
- IRA contributors (who are not covered by a workplace retirement plan and are married to someone who is) - the new range is $204,000 to $214,000
- Married individuals (who are filing separate returns and are covered by a workplace retirement plan) - the range remains $0 to $10,000
The Roth IRA phase-out ranges for 2022 are:
- Single or head of household taxpayers (who are making contributions to a Roth IRA) - the new range is $129,000 to $144,000
- Married couples (who are filing jointly) - the new range is $204,000 to $214,000
- Married individual (who is filing a separate return, and makes contributions to a Roth IRA) - the range remains $0 to $10,000
The Saver's Credit (AKA Retirement Savings Contributions Credit) income limits for 2022 are:
- Married couples (low & moderate-income, and are filing jointly) - the new income limit is $68,000
- Heads of household (low & moderate-income) - the new income limit is $51,000
- Singles or Married Individuals (low & moderate-income, who are filing individually or separately) - the new income limit is $34,000
Individuals may also contribute up to $14,000 to their SIMPLE retirement accounts.
Unchanged Employee 401(k) Contribution Limits
While there certainly are several impactful changes to 401(k) laws, there are several things that remain unchanged as well.
Things that remain unchanged for 2022 when it comes to 401(k)s include:
- The limit on annual contributions to an IRA remains unchanged at $6,000
- The IRA catch-up contribution limit for individuals aged 50 and over remains $1,000
- The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remains unchanged at $6,500
- ...can contribute up to $27,000, starting in 2022
- The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans remains unchanged at $3,000
The IRS has details on these changes on their website and in Notice 2021-61.
Final Thoughts on Connecticut Payroll Changes for 2022
It is important that Connecticut employers familiarize themselves with the changes for payroll in 2022 in order to stay compliant. Proper payroll practices are also a helpful tool in employee attraction and retention, something many companies are struggling with.
In addition to the changes to Connecticut payroll for 2022, employers should also ensure that they are up-to-date on all Connecticut labor laws, especially ones such as the new Connecticut Paid Family Leave Act (PFMLA), and the changes to Connecticut Family Medical Leave Act (FMLA).
If you are a Connecticut-based employer or any employer in the country, HRCG can help you ensure you are prepared for the new payroll updates. Payroll is the lifeblood of your company and with our payroll services from HRCG, we can make moving and managing your payroll quick, accurate, and easy. Human resources and payroll should move together as one, and at HRCG, we make it happen.