Calendar years typically have 26 bi-weekly paydays. January 2, 2020, was the first pay day of 2020. The State pays bi-weekly (every 2 weeks) and the final pay day of 2020 will be December 31, 2020.
What does an extra bi-weekly payday in a calendar year mean?
The additional payday could show gross wages more than an employee’s annual salary on their final pay stub and federal taxable wages on the W-2 could be greater in 2020 than 2019 even with no job or pay change. Because IRS regulations require that we report wages in the calendar year when paid, not earned, wages reported in 2020 will likely be more than normal.
Is there any impact on payroll deductions?
Deferred compensation deductions may be taken as normal, taken for less, or not taken at all on the December 31st payday. If an employee has calculated an amount to be spread over 26 pay periods and does not reach the maximum contribution limit on the 27th payday, the deduction will be taken as normal on December 31st. However, an employee could reach the maximum contribution on the 27th payday where the system would limit his or her deduction to something less than a normal deduction. If an employee has calculated to contribute the maximum yearly amount over 26 paydays, they may not have any deduction on December 31st as they could have already reached the yearly maximum on the 26th pay of the year, December 17, 2020.
SECC deductions are only taken over 26 paydays. Since 27 paydays are scheduled in 2020, no deduction is planned for the last payday on December 31, 2020.
The December 31, 2020 payday will also be the third pay for December. Since some deductions (such as union dues, group life, child support, and spousal support) only occur twice a month, the net pay may be higher if an employee normally has these types of deductions.
Federal tax withholding may be impacted. The IRS released the revised 2020 Form W4. The new Form is available in YES and HRIS training has been updated. Not all employees are required to submit a new W-4. All new employees first paid after 2020 must use the redesigned form. Similarly, any other employee who wishes to adjust their withholding must use the redesigned form. The IRS has a webpage to assist employees in understanding the changes, this includes the IRS Tax Withholding Estimator for individuals. There is also an Income Tax Withholding Assistant for Employers however caution should be used when using these tools because it is based on bi-weekly pay, typically 26 pay days per year, it does not account for 27 pay periods in a calendar year. This causes a slight difference in the tax calculation but there is no need for alarm.
What should be communicated to employees?
Please inform your employees to consider the impacts of a 27th payday in 2020 for their specific situation and encourage them to plan accordingly.
Due to the newly redesigned W-4, the IRS recommends employees do a Paycheck Checkup for accurate tax withholding from their paychecks and avoid tax filing surprises.
The new IRS Form W-4 is available on the Y.E.S. website and can be updated by employees at any time. Instructions for Agencies have been updated in TraCorp under the Agency Payroll Specialist role. The Resource Guide is available on the HRIS website.