2013 Payroll Tax Update
IMPORTANT INFORMATION REGARDING THE NEW CHANGES IN PAYROLL TAXES
On January 2nd, 2013, President Barak Obama signed into law the American Taxpayer Relief Act of 2012. This new law permanently fixes some of the income tax levels at the previously established rates of the 2001 Economic Growth and Tax Relief Reconciliation Act. As a result of these implemented changes, we would like to communicate how these changes will impact you.
The primary change is that the reduced 4.2% rate for employee Social Security taxes that was in effect for 2011 and 2012 has expired. The employee Social Security tax rate will return to 6.2% for 2013 wages up to the new taxable wage limit of $113,700 (up from the 2012 limit of $110,100). This change was effective January 1, 2013 and the applicable adjustments will be implemented for the bi-weekly Payroll on January 18, 2013 as well as the monthly payroll on January 15, 2013. Please be advised that the necessary changes were not included in the on the January 4, 2013 bi-weekly payroll. Employees will notice an additional reduction in net (take home) pay on the paycheck distributed on January 18th, 2013.
Please note that the social security amount on your January 18, 2013 paycheck will be at the new rate of 6.2% and also have a one-time adjustment (catch-up) of an additional 2% for the Social Security tax from the January 4, 2013 bi-weekly payroll that was not withheld. After this adjustment has been made, the rate will return to the 6.2% Social Security tax rate going forward.
Second, Income Tax Withholding Rates: The American Taxpayer Relief Act effectively maintains the reduced income tax rates adopted in 2001 and 2003 for individuals earning under $400,000 per year and married couples earning under $450,000 per year. Income above those levels will experience an increase as the top tax rate will rise 39.6%, up from 35%. The expanded 15% bracket for joint filers, commonly referred to as the marriage penalty relief, has also been extended.
In addition, although the overall Medicare tax rate remained unchanged, a new additional Medicare tax of 0.9 percent goes into effect in 2013. This additional tax applies to an employee's wages in excess of $200,000 in a calendar year. The additional Medicare tax withholding will begin in the pay period in which the employee's wages are to exceed $200,000 and continue until the end of the calendar year.
Loyola has tested and implemented all necessary changes into our Payroll systems so employees do not need to take any additional action at this time. However, it is strongly recommended that all employees evaluate the withholding allowances every year and make adjustments if necessary by submitting a revised W-4 form to the Human Resources Department. At the time of this communication, the new 2013 W-4 form is not yet available through the IRS. This document should be available near the end of January. Should you need to make a change before then, the IRS recommends that you continue to use the existing 2012 form and simply adjust the date on the form to 2013 before submitting to Human Resources for processing.
Should you have any questions or require any clarification into any of these changes, please feel free to contact the Payroll Services Department Helpdesk at 312-915-7444 or e-mail to firstname.lastname@example.org.