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The Payroll Tax Cut Increases to 6.2% In 2013

As we had expected, lawmakers decided to let the 2% payroll tax cut expire in 2013. This means that employees can expect more taxes withheld from their paychecks as well as small businesses having to review their withholding tables. What specific changes need to be made?

payroll tax cutThe payroll tax cut expires
The payroll tax cut reduced the social security tax from 6.2% to 4.2% for all wages earned up 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 paycheck during the past couple of years. This tax break has benefit 122 million taxpayers and is now expired for 2013. This means that the average family earning $50,000 will have $40 less in their biweekly paychecks. Many taxpayers will need to re-evaluate their annual budget as they likely allocated more money towards gas, groceries, 401(k) contributions and other areas when this payroll tax cut went into effect in 2011.

What does this mean for employers?
Employers need to start using the revised withholding tables and correct the amount of Social Security tax withheld to 6.2% as soon as possible. The IRS mandates that all employers must comply by February 15th, 2013. If the amount of 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 their employer has complied with the mandate. However, employees should not have to update their W-4 forms as the employers and payroll companies should handle the withholding update.

Other payroll tax changes
In addition, the Social Security wage base limit increased to $113,700, which is the maximum amount of wages that are subject to the tax. The Medicare tax stays 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 an employee in excess of $200,000 in a calendar year. The withholding should start in the pay period in which wages exceed the $200,000 amount. Please note that there is no employer share of the additional 0.9% Medicare Tax.

More Questions? Browse Answers or ask your 2013 payroll tax questions online.

Related Articles
->Severance Pay Might Not Be Subject To Social Security & Medicare Taxes
->Lawmakers May Let The Payroll Tax Cut Expire
->I Haven’t Received A Raise, So Why Is My Paycheck Bigger?
->What Should You Do with your Social Security Tax Cut?

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