Tax Changes Implemented Pay Period (PP) 2023-02: Federal, PR, AZ, CA, CO, DC, IN, IA, KY, LA, ME, MD, MI, MN, MS, MO, MT, NE, NM, NY, NC, ND, OR, RI, SC, VT and Localities in IN, KY, and NY

MEMORANDUM

DATE: January 26, 2023
TO: Federal Personnel and Payroll System User Group Representatives
FROM: Christine Zertuche-Rocha, Chief, Payroll Operations Division and Robert Crest, Chief, Personnel Payroll Systems Division
SUBJECT: Action Required: Tax Changes Implemented Pay Period (PP) 2023-02: Federal, PR, AZ, CA, CO, DC, IN, IA, KY, LA, ME, MD, MI, MN, MS, MO, MT, NE, NM, NY, NC, ND, OR, RI, SC, VT and Localities in IN, KY, and NY

Please share this information with all impacted employees. The following tax changes were implemented in PP 2023-02. As a result, employees may see a change in their tax withholdings. As a reminder, tax changes are not retroactive to employees’ withholdings.

Federal Tax

• U.S. Federal Social Security (OASDI) Wage Base – The wage base has increased from $147,000 to $160,200. There is no limit on Medicare wages and the Social Security and Medicare tax rates remain unchanged.
• U.S. Federal 401 (k) Wage Limits - The 401(k) maximum exclusion limit has increased from $20,500 to $22,500. The catch-up contribution for employees who will be age 50 or over in 2023 is increasing from $6,500 to $7,500.
• U.S. Federal Income Tax:
  • For withholding based on a pre-2020 Form W-4, Employee’s Withholding Certificate, the annual amount to add to a nonresident alien's taxable wages prior to calculating withholding has increased from $8,650 to $9,550.
  • For withholding based on a 2020 Form W-4, the annual amount to add to a nonresident alien's taxable wages prior to calculating withholding has increased from $12,950 to $13,850.
  • The standard and high-income tax tables for all marital statuses have changed.

U.S. Territory

Puerto Rico 401 (k) Wage Limits:

• The pre-tax contribution limit has increased the pre-tax contribution limit for U.S. federal employees has increased from $20,500 to $22,500.
• The catch-up contribution limit for Puerto Rico plans that cover U.S. federal government employees is increasing from $6,500 to $7,500.
• The catch-up contribution limit for Puerto Rico-Only Plans and Dual-qualified Plans will remain at $1,500. NOTE: This is subject to change. If this limit changes, another Tax Update will be issued.
• Datamart Query: Tax State = RQ

State Tax Changes

Arizona Income Tax Withholding:

• The state income tax withholding formula for Arizona has changed. Starting on February 9, 2023*, the withholding rates that can be elected have changed as follows:

• The default rate for employees who have not submitted an Arizona A-4 form has changed from 2.7% to 2.0%.
• Datamart Query: Tax State = 04

* If a withholding change to the new rate has or is made prior to February 9, 2023, the withholding percentage will not be the elected rate. As a result, it will be necessary for employees to make the new rate change on or after February 9, 2023. We apologize for any inconvenience.

California Income Tax Withholding:

• The low income exemption amount for Married with 0 OR 1 exemption and Single is increased from $15,916 to $17,252.
• The low income exemption amount for Married with 2 or more exemptions and Head of Household is increased from $31,831 to $34,503.
• The standard deduction for Married with 0 or 1 exemption and Single is increased from $4,803 to $5,202.
• The standard deduction for Married with 2 or more exemptions and Head of Household is increased from $9,606 to $10,404.
• The Single, Married, and Head of Household withholding tables have changed
• The annual personal exemption credit has increased from $ 141.90 to $154.
• The Single tax table amount where wages are taxed at the 11.33% rate has been increased from $333,639 to $338,639.
• Datamart Query: Tax State = 06

Colorado Income Tax Withholding:

• The flat tax rate on supplemental wages has changed from 4.55% to 4.40%.
• The standard annual deductions for employees who do not complete form DR 0004 Line 2 or enter additional deduction amounts to their state tax in Employee Express have changed. The annual deduction for employee filing as Married Filing Jointly or Qualifying Window(er) has increased from $8,000 to $9,000. The annual deduction for all other employees has increased from $4,000 to $4,500.
• The tax rate on regular wages has changed from 4.55% to 4.40%.
• Datamart Query: Tax State = 08

District of Columbia Income Tax Withholding:

• The income tax withholding formula for the District of Columbia has changed retroactive to January 1, 2022.
• The annual deduction amount per exemption has increased from $4,150 to $4,300.
• Datamart Query: Tax State = 11

Indiana State Income Tax Withholding:

• The state income tax withholding formula for Indiana has changed effective October 1, 2022.
• A new exemption has been added equal to $3,000 for each adopted child.
• The state tax rate changed from 3.23% to 3.15%, effective January 13, 2023
• Datamart Query: Tax State = 18

Iowa State Income Tax Withholding:

• Federal withholding is no longer deducted from Iowa taxable wages.
• The standard deduction amount for employees claiming zero or one withholding allowance has increased from $2,210 to $13,850.
• The standard deduction amount for employees claiming two or more withholding allowances has increased from $5,450 to $27,700.
• The rate table has changed.
• Datamart Query: Tax State = 19

Kentucky Income Tax Withholding:

• The annual standard deduction is increasing from $2,770 to $2,980.
• The tax rate has changed from 5.0% to 4.5%.
• Datamart Query: Tax State = 21

Louisiana State Income Tax Withholding:

• The income tax withholding formula for the State of Louisiana has been updated effective January 1, 2022.
• Employees claiming Single marital status and 2 personal exemptions will no longer be taxed as Single claiming only 1 personal exemption.
• These employees will be taxed based on 2 personal exemptions using the same formula as a Married employee claiming 2 personal exemptions.
• Datamart Query: Tax State = 22

Maine State Income Tax Withholding:

• The annual exemption per allowance claimed has increased from $4,450 to $4,700.
• The Single and Married standard deduction tables have changed.
• The Single and Married withholding tables have changed.
• Datamart Query: Tax State = 23

Maryland State Income Tax Withholding:

• The minimum Standard Deduction has increased from $1,600 to $1,700.
• The maximum Standard Deduction has increased from $2,400 to $2,550.
• The Maryland - State and Counties Taxing Authorities documentation is being updated to include the following county income tax rate changes.

• Datamart Query: Tax State = 24

Michigan State Income Tax Withholding:

• The annual amount per exemption is increasing from $5,000 to $5,400.
• Datamart Query: Tax State = 26

Minnesota State Income Tax Withholding:

• The annual amount per exemption has increased from $4,450 to $4,800.
• The Single and Married withholding tables have changed.
• Datamart Query: Tax State = 27

Mississippi State Income Tax Withholding:

• The state income tax withholding formula has changed.
• The tax table has changed.
• Datamart Query: Tax State = 28

Missouri State Income Tax Withholding:

• The flat tax rate for supplemental wages has changed from 5.3% to 4.95%.
• The standard deduction amount for employees claiming Single, Married Filing Separate, and Married and Spouse Works has increased from $12,950 to $13,850.
• The standard deduction amount for employees claiming Married and Spouse Does Not Work has increased from $25,900 to $27,700.
• The standard deduction amount for employees claiming Head of Household has increased from $19,400 to $20,800.
• Datamart Query: Tax State = 29

Montana Income Tax Withholding:

• The annual amount per withholding allowance has increased from $1,900 to $2,070.
• The withholding table has been updated.
• Datamart Query: Tax State = 30

Nebraska Income Tax Withholding:

• The annual amount per withholding allowance has increased from $2,080 to $2,140.
• The Single and Head of Household withholding table has been updated.
• The Married withholding table has been updated.
• Datamart Query: Tax State = 31

New Mexico Income Tax Withholding:

• The Single, Married, and Head of Household withholding tables have changed.
• Datamart Query: Tax State = 35

New York Income Tax Withholding:

• The Single and Married tax tables have changed.
• Datamart Query: Tax State = 36

North Carolina Income Tax Withholding:

• The flat tax rate on supplemental wages has changed from 5.09% to 4.85%.
• The wage tax rate for all filers has changed from 5.09% to 4.85%.
• The adjustment based on the minimum additional withholding amount required to be claimed by nonresident aliens has been changed.
• Datamart Query: Tax State = 37

North Dakota Income Tax Withholding:

• The tax tables for all filing statuses have changed.
• Datamart Query: Tax State = 38
• Oregon Income Tax Withholding:
• The standard deduction amount for Single filers claiming less than 3 allowances has increased from $2,420 to $2,605.
• The standard deduction amount for Single filers claiming 3 or more allowances has increased from $4,840 to $5,210.
• The standard deduction amount for Married filers has increased from $4,840 to $5,210.
• The annual tax credit amount, per exemption, has increased from $219 to $236.
• The annualized deduction for federal tax withheld has increased from a maximum of $7,250 to $7,800.
• The tax tables have changed for all filers.
• Datamart Query: Tax State = 41

Rhode Island Income Tax Withholding:

• The annualized wage threshold where the annual exemption amount is eliminated has been increased from $241,850 to $260,550.
• The wage table has been updated.
• Datamart Query: Tax State = 44

South Carolina Income Tax Withholding:

• The flat tax rate on supplemental wages has changed from 7.0% to 6.5%.
• The deduction per personal exemption has increased from $2,750 to $4,310.
• The maximum standard deduction in case of any exemptions has increased from $4,580 to $6,475.
• The state tax table has changed.
• Datamart Query: Tax State = 45

Vermont Income Tax Withholding:

• The annual amount per exemption has increased from $4,500 to $4,850.
• The Single and Married tax tables have changed.
• Datamart Query: Tax State = 50

Local Tax Changes

Indiana Local Income Tax Withholding:

County of Boone:

• The local income tax for Boone, Indiana has changed effective October 1, 2022.
• A new exemption has been added equal to $3,000 for each adopted child.
• The resident income tax rate has changed from 1.5% to 1.7%.
• Datamart Query: Tax State = 18 County Code = 011

County of Johnson:

• The local income tax for Johnson, Indiana has changed effective October 1, 2022.
• A new exemption has been added equal to $3,000 for each adopted child.
• The resident income tax rate has changed from 1.2% to 1.4%.
• Datamart Query: Tax State = 18 County Code = 081

County of Knox:

• The local income tax for Knox, Indiana has changed effective October 1, 2022.
• A new exemption has been added equal to $3,000 for each adopted child.
• The resident income tax rate has changed from 1.2% to 1.7%.
• Datamart Query: Tax State = 18 County Code = 083

County of LaPorte:

• The local income tax for LaPorte, Indiana has changed effective October 1, 2022.
• A new exemption has been added equal to $3,000 for each adopted child.
• The resident income tax rate has changed from 0.95% to 1.45%.
• Datamart Query: Tax State = 18 County Code = 091

County of Monroe:

• The local income tax for Monroe, Indiana has changed effective October 1, 2022.
• A new exemption has been added equal to $3,000 for each adopted child.
• The resident income tax rate has changed from 1.345% to 2.035%.
• Datamart Query: Tax State = 18 County Code = 105

County of Montgomery:

• The local income tax for Monroe, Indiana has changed effective January 1, 2023
• The resident income tax rate has changed from 2.1% to 2.65%.
• Datamart Query: Tax State = 18 County Code = 107

Kentucky Local Income Tax Withholding:

Boone County:

• The taxable wage base is increasing from $67,179 to $72,906.
• The employee tax rate remains at 0.8%.
• The maximum tax is $583.25.

New York Local Income Tax Withholding:

Yonkers:

• The Single and Married tax tables have changed.
• Datamart Query: Tax State = 36 County Code = 6820

You may execute Datamart queries to identify employees in affected taxing areas. For Combined File Ad-Hoc query/analysis of applicable States: add STE Tax State 1 = (State Code above) or STE Tax State 2 = (State Code above) to the filter or prompt lines. See above for the applicable Local Tax State and/or Local Tax City Codes to add to the prompt lines (Occurrences – Other PE Pay).

The Interior Business Center (IBC) Payroll website is updated frequently; you may view the state tax formulas here: https://ibc.doi.gov/HRD/FedStateTerritorial.

If there are any questions, please call the IBC Customer Support Center at 720-673-9958 (interim contact number) or by email at Payroll_Helpdesk@ios.doi.gov.