Payroll Taxes for 2013
Argument regarding the tax policies may be delayed until 2013. Congress is still divided and there is not a clear unite. The payroll requirements may be delayed as far as January of 2013. This action is detrimental to payroll companies and citizens.
Afraid of losing jobs, afraid of failure, no one is certain. We all should prepare for the worst.
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Withholding Income Taxes
Some states have released their income tax withholding tables for 2013. The IRS (Internal Revenue Service) is waiting for congress before it releases tables. But here is a scenario; If Congress does not deliver before 2013, the Treasury secretary mad choose to keep some tax rates the same. This may apply to all or those making less than $200k per year. When increasing tax, it involves more than one method. For individuals making 200k, not only could the tax rates increase, but the amount of withholding allowances may decrease, causing more taxes to be paid.
If no Federal income tax extension is passed for individuals by the end of 2012, the four highest-percentage federal income tax brackets will increase. The rates may jump from 35 percent to 39.6 percent followed by rates 36 percent from 33 percent and 25 percent to 28 percent.
Backup Withholding Rate
The backup withholding rate applicable for payments to individuals identified by IRS as having provided an incorrect taxpayer identification number, which is pegged at the third-highest rate, would increase to 31 percent from 28 percent without an extension, Langer said.
Release of the 2013 Publication 15 (Circular E), Employer’s Tax Guide, which is to include percentage method withholding tables and wage-bracket method withholding tables, would occur after Congress decides which income tax rates to extend, Langer said.
Form W-4, Employee’s Withholding Allowance Certificate, likely will be released after the release of the 2013 Publication 15, Langer said. Because Form W-4 is required for successfully withholding employee wages in conjunction with the tables, a delayed release of the 2013 form could be detrimental to employees who want to file the form, especially employees who want to claim exemption from federal income tax withholding and who need to file a Form W-4 by February 15 each year to acquire the exemption through February 15 of the following year, Langer said.
FICA Withholding, Form 941
Form 941, Employer’s Quarterly Federal Tax Return, which includes lines for reporting taxable Social Security and Medicare wages may be finalized in the first quarter of 2013 because IRS cannot sign off on the form until it knows the employee Social Security tax rate for 2013.
Social Security tax rate of 4.2 percent is scheduled to revert to 6.2 percent January 1, 2013. The White House has said that the administration is to evaluate by the end of 2012 whether to extend the reduced rate.
Line 5d of Form 941 likely will become the line for reporting wages greater than $200,000 that are subject to the additional Medicare tax rate of 0.9 percent starting January 1, 2013. The extra tax applies only to the employee portion of Medicare tax and not to the employer portion.
Employers should recognize employees whose earnings were near or surpassed the $200,000 threshold for 2012 so that employers can better anticipate who might be focus to the additional tax.
The employer and employee portions of Medicare wages assessed at the standard 1.45 percent tax rate still will be reported using Line 5c of Form 941.
Carrying out of the 0.9 percent additional Medicare tax will not affect the arrangement of the 2013 Form W-2, Wage and Tax Statement, Langer said. The total of all Medicare wages and tips, including employee wages exceeding $200,000, still would be stated in Box 5. Total withheld Medicare taxes still would be reported in Box 6.
Systems and Communications
When the rates are released, payroll experts should adjust payroll processing systems. A test should be run to see whether the systems are properly calculating withholding on the adjusted values.