Updated – Calendar Year 2013 Tax Changes
Jan. 7, 2013
Expiration of the “payroll tax cut”
Under the Middle Class Tax Relief and Job Creation Act of 2012, the 2012 Federal Insurance Contributions Act (FICA) tax rate is 4.2 percent for employees and 6.2 percent for employers. The rate for 2013 is scheduled to increase to 6.2 percent for employees and remain at 6.2 percent for employers up to the Social Security wage base discussed below. However, current discussions in Congress could result in tax changes and the Statewide Human Resource and Payroll Assistance (SHRPA) team will be closely monitoring any changes.
NOTE: On Jan. 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 which includes measures affecting federal withholding tax rates. New federal withholding tables have been issued by the Internal Revenue Services and those tables have been updated in the Uniform Statewide Payroll/Personnel System (USPS).
Another calendar year-end change is the increase to the supplemental withholding rates effective for all supplemental wages paid on and after Jan. 1, 2013. The rate for supplemental withholding effective Jan. 1, 2013 remained at 25 percent; for supplemental wages greater than $1,000,000, the rate increased from 35 percent to 39.6 percent. This change has also been applied to the tables in USPS.
The Uniform Statewide Payroll/Personnel System (USPS) has been updated with the tax changes known at this time. Additional changes will be made as announced by the federal government. Agencies reporting to the Standardized Payroll/Personnel System (SPRS), those using the Centralized Accounting and Payroll/Personnel System (CAPPS), and institutions of higher education should ensure compliance in their systems.
New Social Security wage limit
The Social Security Administration (SSA) announced on Oct. 16, 2012, that the 2013 Social Security wage base will be $113,700, an increase of $3,600 from the 2012 wage base of $110,100. (The SSA Fact Sheet has detailed information.)
The FICA tax rate, which is the combined Social Security tax rate of 6.2 percent and the Medicare tax rate of 1.45 percent, will be 7.65 percent 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.
Patient Protection and Affordable Care Act (Pub. L. No. 111-148, as amended)
A new Additional Medicare Tax goes into effect starting in 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages that exceed a threshold amount based on the individual’s filing status.
The threshold amounts are:
- $250,000 for married taxpayers who file jointly,
- $125,000 for married taxpayers who file separately, and
- $200,000 for all other taxpayers.
An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. The Medicare Tax for employee withholding will increase 0.9 percent — from 1.45 percent to 2.35 percent — on wages paid over $200,000, effective for taxable years after Dec. 31, 2012.
All wages currently subject to Medicare tax are subject to the Additional Medicare Tax if they are paid in excess of the applicable threshold for an individual’s filing status. The statute requires an employer to withhold Additional Medicare Tax on wages or compensation it pays to an employee in excess of $200,000 in a calendar year, regardless of whether the employee will actually reach the applicable threshold. Any discrepancies between the amount withheld and the amount of the employee’s actual liability for the Additional Medicare Tax will be reconciled on the individual’s income tax return (Form 1040).
There is no employer match for the Additional Medicare Tax as there is with the regular Medicare tax. Therefore, employers will continue to pay an amount equal to 1.45 percent of the employee’s wages in excess of $200,000.
An employer is required to begin withholding additional Medicare tax in the pay period in which it pays wages in excess of $200,000 to an employee. It may not withhold the additional Medicare tax in anticipation of an employee’s wages exceeding the threshold. If a wage payment takes an employee from under $200,000 in wages paid to over $200,000 in wages paid, the employer must not withhold the additional Medicare tax on the wages paid up to $200,000. Additional Medicare tax withholding applies only to wages (paid to an employee) that are in excess of $200,000 in a calendar year.
Form 941 amended to include Additional Medicare Tax
The IRS advises that the 2013 941 and 941X series forms will have a new line added for reporting the Additional Medicare Tax on wages and tips paid to an employee in excess of $200,000.
Form W-2 unchanged
The IRS advises that it will not add additional boxes to Form W-2 for the Additional Medicare Tax on wages in excess of $200,000. Employers will report aggregate Medicare wages and tips in Box 5 and the aggregate Medicare tax in Box 6.
Federal income tax withholding tables for tax year 2013
Generally, the federal income tax withholding tables are updated for each tax year. However, until the new tables are issued, the current tables remain in effect.
At this time, discussions are underway in Congress that could impact the 2013 withholding tables, but no conclusions have been reached. As soon as the new tables are released, USPS will be updated to reflect the new tax tables. Agencies reporting to SPRS, those using CAPPS, and institutions of higher education should ensure compliance in their systems.
It is important to remember that the amounts withheld from an employee’s wages are only an estimate of the required taxes based on the wages being paid by the employer and the instructions from the employee on Form W-4. An employee’s withholding taxes are calculated on all income received during the tax year and are calculated on Form 1040 when the employee files a tax return.
State and local income tax withholding tables for tax year 2013
USPS has been updated to reflect the new tax tables issued by the following states:
- New York
- North Dakota
- Rhode Island
Additional state tax tables will be updated as they are released by the states.
USPS has also been updated with new local withholding tax tables for the various New York and Maryland localities, and Kentucky local taxes have been updated. Agencies reporting to SPRS, agencies using CAPPS and institutions of higher education should ensure that their systems are updated with the appropriate tax tables for state and local income tax withholding for tax year 2013.