As part of a solution to the 2013 “fiscal cliff”, Congress recently passed a bill that extended the Bush-era tax cuts for individuals earning less than $400,000/year and couples earning less than $450,000/year. While these cuts have made headlines across the country, not all of the changes have been as widely publicized.
For those of you who haven’t had a chance to review this new legislation, investigate the changes and understand how they will impact your business, here is a brief summary of the important payroll changes for the 2013 fiscal year.
First and foremost, the prior payroll tax cut on employee social security tax withholding expired on December 31, 2012. This mean that the social security withholding rate will increase by 2% from 4.2% to 6.2% for employers. While there are those who think that Congress may act at some point in the near future to extend the former 4.2% rate, employers under the Middle Class Tax Relief and Job Creation Act of 2012 must immediately adhere to this new and increased rate effective January 1, 2013.
Second, the 2013 Social Security Wage base has been increased $3,600/year, from a base of $110,100 to $113,700. There is still no limit to the amount of wages subject to the Medicare tax, so all covered wages continue to be subject to the applicable 1.45% tax.
Finally, 2013 Medicare wages exceeding $200,000 are now subject to an extra .9% Medicare tax. Employers are not required to pay this, rather it is to be withheld from employees’ wages.
Ultimately, the 2013 FICA rate (the combined Social security tax rate of 6.2% and the Medicare tax rate of 1.45%) will be 7.65% up to the the social security wage base. This makes the maximum social security tax amount paid by employers and employees $7,049.40 for 2013 (an increase of $2,425.20 for employees and $223.20 for employers).
If you have any questions about how these new tax policies will affect your business, please contact us at 866-492-2042 as soon as possible. We’re fully prepared to help you stay compliant with the new rates.
[schema type=”person” name=”Matt Lescault” orgname=”Lescault and Walderman” phone=”866-496-2042″ ]