January Payroll Alert

As of 12/26/12, President Obama and Congress continue to be divided about how to avoid the “fiscal cliff” caused by the simultaneous expiration of the Bush tax cuts and the implementation of deep cuts in federal spending scheduled to take effect 1/1/13.

While there is a great deal of confusion regarding the eventual outcome, there are some important facts that all employers should keep in mind:

1. Employee Social Security tax rate to increase- The payroll tax cut that reduced the employee share of the social security tax from 6.2% to 4.2% expires on December 31, 2012. Beginning with payrolls run in January, the employee social security rate will increase by 2%. Employees will feel the impact immediately with reduced take home pay. An employee making $50,000 per year will see a reduced net pay of approximately $38 for a bi-weekly payroll or $19 for a weekly payroll. Employers should be prepared to answer questions from their employees about the reduction in net pay. Should Congress and the President extend the payroll tax cut after January payrolls have been run, employees will see the credit applied to their portion of the social security taxes retroactively.

2. IRS statement on 2013 tax tables- Due to the failure of the President and Congress to address the “fiscal cliff issue”, the Treasury department has not issued withholding tax tables for 2013 or official guidance on how employers should proceed. The Chief of Employment Tax Policy at the IRS has said it would be consistent with the past for employers to continue withholding using 2012 tax tables if no new tables have been issued. Depending on the outcome of the current negotiations, certain wage levels may see another decrease in net pay as tax rates increase.

3. 2013 Unemployment Rates- Just a reminder that Massachusetts unemployment rates are calculated on the first $14,000 in wages for each employee. Beginning with the first payroll in January, the unemployment taxes will begin to calculate for all employees. All employers will see an increase in the amount of unemployment taxes debited from their payroll account. BizChecks Payroll anticipates that the State will once again not issue 2013 rates until late March. Please be aware that any increases will be retroactive to January 1st so employers should budget for the additional tax liability if they anticipate an increase in their DUA rate.