State Agencies Bulletin No. 1892

Subject
Summary of Tax Related Changes for 2021
Date Issued
January 22, 2021

Purpose

The purpose of this bulletin is to inform agencies of the updated IRS (Internal Revenue Service) tax withholding requirements for 2021 and other tax related topics.

Affected Employees

Employees meeting the criteria as explained in this bulletin are affected.

Effective Dates

Effective January 1, 2021 through December 31, 2021.

OSC Actions

OSC has updated PayServ with the new Federal and New York tax requirements for 2021. OSC continues to use the Percentage Method on an Annual payroll period for income tax withholding purposes.

Agency Actions

Agencies must notify employees who meet the criteria outlined in this bulletin.

Summary of Changes

To date, the IRS has issued guidance on changes to the following areas for 2021:

  • Withholding Rates and Tax Brackets
  • Additional Withholding Adjustment for Nonresident Aliens
  • Supplemental Wage Withholding Flat Rate
  • Social Security Wage Base Limit
  • Contribution Limits on Pension/Retirement Plans
  • Qualified Transportation & Parking Fringe Benefits Limit
  • Mileage Rates
  • Individual Taxpayer Identification Number (ITIN) - Renewal/Expiration.

Tax Rates

Federal Tax Withholding Rates

All Federal tax withholding rate changes effective in the first paycheck of January, 2021.

Federal Withholding Allowance

Per IRS Publication 15-T, withholding for employees with the 2019 version of Form W-4 or earlier will be calculated using $4,200 for each allowance. New employees, rehires, and employees changing their withholding must use the new Form W-4, which does not use allowances. Please refer to Bulletin No. 1800.1 for further guidance.

New York Tax Withholding Rates

2021 New York State and Yonkers withholding tax tables have been updated. No updates required for New York City at the time of this bulletin issuance.

New York State, New York City and Yonkers Withholding Allowance

The value of one New York State, New York City, and Yonkers withholding allowance remains at $1,000.

Additional Withholding Adjustment for Nonresident Aliens

Withholding of federal income tax on the wages of nonresident alien (NRA) employees is subject to an additional withholding amount that is added to NRA employees’ wages for calculating Federal income tax. The additional withholding amount added to annual income has increased to $8,250 for 2021 if the NRA employee was first paid wages before 2020 and has not submitted a new Form W-4 for 2020 or later. If the NRA employee was first paid wages in 2020 or later or has submitted a new Form W-4 for 2020 or later, then the additional withholding amount added to annual income is $12,550. This procedure does not apply to NRA students from India.

Supplemental Wage Withholding

OSC uses the Aggregate method for Supplement Wage Withholding.

Note: This is provided for informational purposes only.

Social Security & Medicare Wage Base and Tax Rate Information

The Social Security wage base limit for 2021 has increased to $142,800 (max tax $8,853.60). There is no limit on the amount of wages subject to Medicare tax. The Social Security tax rate of 6.2% and Medicare tax rate of 1.45% remain the same. Employees receiving income in excess of $200,000 will be subject to an additional Medicare Tax of .9%. The additional tax applies only to income above the $200,000 threshold and is paid only by employees.

Contribution Limits on Pension/Retirement Plans

403(b) and 457 Deferred Compensation

The annual limit has remained the same at $19,500 for 2021. Please refer to Payroll Bulletin Nos. 1877 and 1880 for additional information.

Pre-Tax Benefits

Qualified Parking Benefits

The maximum exclusion from gross income for qualified parking benefits has remained the same at $270 per month in 2021.

Qualified Transit Pass

The maximum exclusion from gross income for qualified transportation benefits will remain at $270 per month in 2021.

Questions

Questions regarding this bulletin may be directed to the Tax and Compliance mailbox.