Jan 4, 2013

4 Payroll Updates & Tax Changes for 2013

The night before last, the House voted 257-167 to approve a bill to prevent the fiscal cliff. The plan maintains tax cuts for those earning less than $400,000/year and couples earning less than $450,000/year. Those individuals earning more will see increased tax rates. As we begin 2013 and deal with the aftermath of the Fiscal Cliff, there are many very important payroll tax updates that need to be explained:

Federal Income Withholding Tax: As of December 31, 2012 there has not been a final decision made on the 2013 federal withholding tax tables. While income tax rate increases technically take effect immediately on Jan. 1, the IRS has instructed Employers to not change anything with regard to withholding; to use the same withholding tables that have been used for 2012. As a result, most American workers are not expected to immediately suffer an increase in income taxes, even if political leaders have failed to reach a deal.
Social Security: 2013 Social Security Wage Base has increased to $113,700, an increase of $3,600 from the 2012 wage base of $110,100. As in prior years, there is no limit to the wages subject to the Medicare tax; therefore all covered wages are still subject to the 1.45% tax.
Medicare: In 2013 taxable Medicare wages paid in excess of $200,000 are subject to an extra 0.9% Medicare tax that will only be withheld from employees’ wages. Employers will not pay the extra tax.
Expired Payroll Tax Cut resulting in 2% more in employee social security tax withholding – As of December 31, 2012, the Payroll Tax Cut expired. This cut reduced payroll taxes by 2%. The 2012 FICA tax rate was 4.2% for employees and 6.2% for employers under the Middle Class Tax Relief and Job Creation Act of 2012. However, bills currently being considered in Congress may change this but until Congress acts to further extend the 4.2 percent rate, the employee rate will withhold based on 6.2% with paychecks beginning in January 2013. The 2013 FICA tax rate, which is the combined Social Security tax rate of 6.2% and the Medicare tax rate of 1.45%, will be 7.65% for 2013 up to the social security wage base. The maximum social security tax employees and employers will each pay in 2013 is $7,049.40. This will be an increase of $2,425.20 for employees and $223.20 for employers. The employer rate remains 6.2 percent. The Medicare rate, also matched by the employer, is unchanged at 1.45 percent and applies to all wages.

NewtekOne, The Small Business Authority, is an expert in Payroll Processing. We standby to monitor any payroll-tax related legislation changes made by congress and will send out additional updates of the changes and implementation of the change. In the meantime, if you have any questions, please feel free to comment on this log or email payrollsupport@newtekone.com. As a regular contributor to Forbes.com this article was originally published on our Forbes blog page. Click here to see the original post.