Key Updates for Employers in 2025: W-4, IRS Mileage Rate, and 401(k) Limits

As we roll into 2025, employers need to stay informed about important updates from the IRS that will impact payroll and employee benefits.

New W-4 Form for 2025

The IRS has released the 2025 Form W-4, Employee’s Withholding Certificate, with a few minor changes – the form now includes a tip encouraging employees to use the IRS’s tax withholding estimator for more accurate withholding. This is particularly useful for employees with multiple jobs or those who have experienced significant life changes. Employers should ensure that all new hires complete the updated form and consider reminding current employees to review their withholding to avoid any surprises at tax time.

In addition to the federal W-4 form, employers must also pay attention to state-specific withholding forms. Each state may have its own requirements and forms that employees need to complete for accurate state tax withholding. Employers should stay updated on any changes to these forms and ensure that employees fill out the correct state withholding forms to avoid any discrepancies in state tax withholding.

Updated IRS Mileage Rate

Starting January 1, 2025, the IRS standard mileage rate for business use of a vehicle will increase to 70 cents per mile, up from 67 cents in 2024.? More info can be found here.

This rate is used to calculate the deductible costs of operating an automobile for business purposes. Employers who reimburse employees for business travel should update their reimbursement policies to reflect this new rate. It’s also important to communicate this change to employees who frequently use their personal vehicles for work-related travel.

Increased 401(k) Contribution Limits

The IRS has announced that the 401(k) contribution limit for 2025 will increase to $23,500, up from $23,000 in 2024. Additionally, the catch-up contribution limit for employees aged 50 and over remains at $7,500. However, a new provision under the SECURE 2.0 Act allows employees aged 60 to 63 to make catch-up contributions up to $11,250. Employers should update their payroll systems to accommodate these new limits and inform employees about the increased opportunities for retirement savings.

How to Prepare:

1. Update Payroll Systems: Ensure that payroll systems are updated to reflect the new W-4 form (and state tax forms), mileage rate, and 401(k) contribution limits.
2. Communicate Changes: Inform employees about these updates through internal communications, such as emails or company newsletters.
3. Review Reimbursement Policies: Adjust mileage reimbursement policies to align with the new IRS rate and communicate these changes to employees.
4. Encourage Retirement Savings: Promote the increased 401(k) contribution limits and the new catch-up provisions to help employees maximize their retirement savings.

By staying informed and proactive, employers can ensure compliance with IRS regulations and support their employees in making the most of these updates.?

Reach out to bizhaven today to learn more about how you can prepare and stay compliant in 2025!