Potential Payroll Tax Changes to be Aware of in 2013

A new year means a new round of potential U.S. tax law changes that would impact payroll in 2013. Your main focus is on growing your small business, but not being aware of these changes could make for a stressful tax season as deadlines near. To help ease the stress, we’ve summed up the three major pieces of legislation that may impact payroll tax tables starting January 1.

2% Payroll Tax Holiday

For employees, the social security tax rate could revert back to 6.2% in 2013 unless the government decides to extend the provision another year. Currently, the rate is 4.2% and the earnings cap is $110,100 for 2012. For self-employed individuals, the payroll tax rate would increase to 12.4% in 2013, from the current rate of 10.4%.

Individual Tax Rate Changes

The individual tax rates are scheduled to increase (15%, 28%, 31%, 36%, 39.6%) in 2013 unless the government decides to extend the existing lower rates (from 10%, 15%, 25%, 28%, 33%, 35%). The existing 10% tax rate would be eliminated in the new tax schedule, while most of the remaining rates would increase.

Tax Increase for High-Earners

Currently, wages are subject to a 2.9% Medicare payroll tax — workers and employers each pay 1.45%, while the self-employed pay both halves. The tax is levied on all workers’ wages, regardless of their wage amount.

Starting January 1, individuals earning over $200,000 (or $250,000 for couples who file taxes jointly) could see their Medicare payroll tax rate increase 0.9%, from 1.45% to 2.35% (levied on wages over these threshold amounts). Employers would continue to contribute the 1.45% that they are currently paying.

In the below infographic, Intuit’s tax expert Mike D’Avolio outlines in greater detail the key proposed 2013 tax legislation changes that would impact payroll. Check back in January 2013 for a follow-up post about which proposed changes have been implemented and what small business owners can do to stay compliant.

Infographic by Column Five

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About Mike D'Avolio

Mike D’Avolio is a senior tax analyst on Intuit's Accounting Professionals Division. He lives in Orange County and when he isn’t sharing tax advice with small businesses, he enjoys spending time with his two sons.
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Another tax increase that most businesses don't know about is the FUTA increase for employers in states that had to borrow from the federal government to pay state unemployment insurance. They are called Credit Reduction States. In Indiana, employers pay $105 per employee per year instead of the normal rate of $42. It is a small tax but still another tax on businesses.