News & Announcements

Important Payroll Tax Changes in 2013

January 8, 2013

2% Payroll Tax Reduction Expires

Effective January 1, 2013, the 2% payroll tax reduction introduced by the 2010 Tax Relief Act is no longer in effect. Specifically, the employee’s portion of the Social Security payroll tax on their wages will return to 6.2%. Correspondingly, the self-employment tax rate will also increase by 2%, returning to the 2010 rate of 15.3%.

.9% Medicare Tax on Wages

As part of the new heath care reform laws, the 2013 Medicare tax rate withheld from the wages of certain employees will increase by .9% depending upon their filing status and income level. The new .9% additional Medicare tax will apply to an individual’s wages and self-employment income that exceeds $250,000 for married filing joint taxpayers ($125,000 if filing a separate return), and $200,000 for all other taxpayers.

Employers will be required to withhold this additional tax in the first pay period that the employee's wages exceed the threshold. Employers are not to consider the spouse's wages or wages from additional sources in computing this threshold. There is no employer match and the employer is not required to inform the employee of this additional tax. Self-employed individuals are required to include this additional tax in their regular estimated tax payments. Any overpayment or underpayment of this tax will be reflected on the individual's tax return.

The IRS has a FAQ site for this new tax.
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Questions-and-Answers-for-the-Additional-Medicare-Tax

The IRS updated the income tax withholding tables for 2013 to reflect the above changes on January 3, 2013. Employers have until February 15, 2013, to start using the revised tables and the correct social security withholding rate.

For more details, see the attached link to the IRS Notice.

 

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