Employee Tax in 2013: Prepare for Changes in Payroll, Income, and Medicare Taxes

Happy new year? On January 1, 2013, taxes go up for most employees, and the burden is on employers to make sure the money gets to Uncle Sam. That leaves just one short month to prepare for these three changes:

1. Expiration of the payroll tax holiday:

“The 2 percent payroll tax cut enjoyed in 2011 and 2012, which reduced the employee’s share of Social Security payroll taxes, will expire as of January 1, 2013. Specifically, this tax cut reduced the employee’s share of Social Security taxes from 6.2 percent to 4.2 percent on the first $110,100 of wages in 2012… Although the increase is on employee contributions, the increase also affects an employer’s withholding obligations. Furthermore, if an employer provides a gross-up of any type to an employee, such gross-up will be commensurately more expensive beginning in 2013.” (McDermott Will & Emery)

2. Employee income tax rate changes:

“Absent congressional action … [i]ndividual income tax rates will also increase. At present, there are six individual ordinary income tax brackets taxed at rates of 10%, 15%, 25%, 28%, 33% and 35%. In 2013, there will be five brackets taxed at rates of 15%, 28%, 31%, 36% and 39.6%.” (Katten Muchin Rosenman)

3. Additional Medicare tax for high-income employees:

“Employers and employees currently each pay a Medicare tax of 1.45% on wages. Beginning in 2013, employers must withhold an additional 0.9% payroll tax as part of the employee portion of the Medicare tax for certain higher income employees. Although the additional tax is imposed on wages in excess of $200,000 for single filers ($125,000 for married individuals filing separately and $250,000 for joint filers), employers must nevertheless withhold the additional tax on behalf of all employees who have annual wages in excess of $200,000, regardless of their marital or tax return filing status.” (Bradley Arant Boult Cummings)

The updates:

Find related law updates on JD Supra>>