It’s December already? Yep, and if you find yourself struggling to remember how it is that we got here so quickly, you’re not alone. Every year, it seems that the end comes so fast, and before you know it, you have to remember everything that happened over the past year. This can be an especially trying task when it comes to things like taxes and mandatory reporting for businesses. I mean, there was so much that happened over the past year—payrolls, regulation changes, internal shufflings—that it can be difficult to look back and remember all of the things you need to remember heading into the new year.
This is a problem that many individuals and businesses face. At Payday HCM, our clients and potential clients are constantly approaching us with questions about legislative and regulatory updates and changes that happen throughout the year. There can be a lot to keep track of, and for a business owner who’s often more concerned with the daily operations of said business, it can feel like too much sometimes.
That’s why, in this article, we’ll go over the key regulatory and legislative changes that you need to know when it comes to year-end reporting and filing. The updates that we’ll cover here include:
- IRA Small Business Tax Credit Expansion
- Federal Tax Limits and Filing Mandates
- Affordable Care Act Updates
These changes could have larger impacts on how your business approaches its end-of-the-year filing and reporting. By the end of this article, you’ll have all the information you need to know to take on this year’s end with confidence.
IRA Small Business Tax Credit Expansion
The first update we’ll cover isn’t exactly brand new, but it’s still important to go over as the changes only went into effect somewhat recently.
Understanding The New Tax Credits
With the Inflation Reduction Act, small businesses are now able to take advantage of an increase in tax credits offered to businesses that expand their research activities. The changes allow businesses to take an additional $250,000 in credits against their Medicare taxes. Previously, employers could only receive a $250,000 credit from their Social Security taxes.
While the Inflation Reduction Act was passed in 2022, the second quarter of 2023 was actually the first quarter in which businesses could claim the credit from their Medicare taxes. It’s still a relatively new change and one that could prove beneficial to your business.
Why It Matters for Your Business
Obviously, any tax credit is a good thing for your business, but this one has multiple layers. Firstly, you have the baseline benefit of a tax credit. Secondly, this credit can help to encourage your business to perform more research into how to offer better products and services to your customers.
To qualify, the qualified research must be “technological in nature” and provide some improvements that benefit the business, according to the IRS. You also must exhaust all of the $250,000 Social Security tax credit portion before taking advantage of the Medicare credit.
Federal Tax Limits and Filing Mandates
Looking ahead, there are some changes to federal tax limits that will impact payroll and reporting. It’s crucial to understand these changes to ensure seamless compliance.
Social Security Wage Base Limit
The Social Security wage base limit has changed slightly in the last year, resulting in a bit of a difference when looking at taxable earnings. For 2025, the new maximum limit is $176,100 compared to $168,600 for 2024.
This doesn’t mean that the actual tax rates for Social Security or Medicare have changed. Those rates are still 12.4 percent combined for Social Security for employers and employees and 2.9 percent combined for employers and employees for Medicare. This means that the maximum amount of taxable earnings for Social Security is slightly higher.
E-Filing Mandate
Another change businesses can expect to see is in regards to whether they will be filing electronically or by paper. For this tax year, employers who are filing ten or more returns will be required to file electronically.
This can be slightly confusing for some smaller employers who may not be sure if they qualify. The mandate is for those filing ten or more total returns. This means that if you have five employees but are filing ten different total forms with the IRS, you’ll still be required to file electronically.
Affordable Care Act Updates
Applicable large employers have updated requirements under the Affordable Care Act for the upcoming year. Ensuring compliance with these changes is crucial to avoid penalties.
Changes to Affordability Thresholds
Employers got a bit of a break when it came to the ACA in 2024, but this won’t necessarily be the case in 2025. For this year, the new ACA affordability threshold is 9.02 percent, up from 8.39 percent for 2024.
This affordability threshold helps the IRS determine whether an ALE’s insurance coverage is affordable under the ACA’s affordability and minimum value guidelines. The percentage refers to a percentage of an employee's income.
Filing Deadlines and Penalties
Applicable large employers want to be sure to file their ACA information, as certain penalties can be incurred. For employers who fail to file the proper forms, the penalty is $270 for each return where the information failed to be filed. This penalty caps out at $3.275 million.
The same penalty amount—$270 for each return where the failure occurs, maxing out at $3.275 million—applies to employers who must correct any filings. The IRS can also issue differing individual penalties to employers who intentionally disregard filing any information.
Feel Great And Stay Up-To-Date
Another year come and gone, and another tax filing season is upon us. You know, it’s really starting to seem like every year, businesses and individuals have to file their taxes with the IRS. And every year, the process seems to be extraordinarily complicated and stressful, with all sorts of different changes and updates happening throughout the year that no one can ever remember. Maybe someday, there will come a time when we don’t have to do this every year, but for now, we do. Luckily, with the information provided in this article, it won’t have to be as complicated and stressful.
Of course, these aren’t the only things you’ll need to know heading into the end of the year. Take a look at our article on employer taxes to get a refresher on everything you’ll need to pay heading into next year.
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