As we had expected, lawmakers decided to letthe 2% payroll tax cut expire in 2013. This means that employees can expectmore taxes withheld from their paychecks as well as small businesses having toreview their withholding tables. What specific changes need to be made?
Thepayroll tax cut expires
The payroll tax cut reduced the social security tax from 6.2% to 4.2% for all wages earnedup to $106,800. This meant that an individual earning $100,000, has had $2,000(2%*$100,000) in additional annual income or $75 more in each biweekly paycheckduring the past couple of years. This tax break has benefit 122 milliontaxpayers and is now expired for 2013. This means that the average familyearning $50,000 will have $40 less in their biweekly paychecks.
What does this mean foremployers?
Employers need to start using the revised withholding tables and correct theamount of Social Security tax withheld to 6.2% as soon as possible. The IRSmandates that all employers must comply by February 15th, 2013. If the amountof social security is under-withheld at 4.2% before the February deadline,employers have until March 31, 2013 to make an adjustment to the workers’ pay.It’s important that employees review their paychecks to confirm that theiremployer has complied with the mandate. However, employees should not have toupdate their W-4 forms as the employers and payroll companies should handle thewithholding update.
Other payroll tax changes
In addition, the Social Security wage base limit increased to $113,700, whichis the maximum amount of wages that are subject to the tax. The Medicare taxstays the same at rate 1.45% for both employers and employees. However,employers must withhold an additional 0.9% Medicare Tax for wages paid to anemployee in excess of $200,000 in a calendar year. The withholding should startin the pay period in which wages exceed the $200,000 amount. Please note thatthere is no employer share of the additional 0.9% Medicare Tax.

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