Update on Payroll Tax Changes for 2013
As we begin the new year, we want to update you on several tax rate changes previously communicated in December 2012 that will impact your upcoming 2013 pay periods.
Federal Income Withholding Rates
Updated federal income tax withholding rates for 2013 were released by the IRS on January 3, 2013, and reflect changes made by Congress on December 31. The new income tax rates retain the rates in effect during 2012 for all wage earners, except the highest earners. For individuals with taxable incomes of more than $400,000, and $450,000 for married couples, the income tax rates increased to 39.6%. The highest income tax rate during 2012 was 35%.
Due to the late release of the updated income tax withholding rates, these changes will be reflected in February 2013 for those employees affected by the changes. For hourly employees, the biweekly payroll period ending 02/16/2013 to be paid on 02/27/2013 will be the first payroll period to reflect the changes. For monthly paid employees, the period ending on 02/28/2013 will reflect the changes.
Federal income withholding rates for supplemental wages (i.e., wage payments to an employee that are not regular wages) will remain at 25%, the same rate in effect during 2012. An example of supplemental wages includes incentives paid to physicians under the University Physicians Practice Plan.
OASDI and Medicare Taxes
As noted previously, changes to the OASDI and Medicare taxes have been implemented for January pay periods. For hourly employees, the biweekly payroll period ending 12/22/2012 paid on 01/02/2013 was the first payroll period that reflected the changes. For monthly paid employees the period ending on 01/31/2013 will reflect the changes.
Your portion of OASDI (OASDI/EE) taxes increased from 4.2% to a rate of 6.2% on earnings paid on or after January 1, 2013. The maximum earnings subject to OASDI taxes will be capped at $113,700 in 2013. In 2012, the cap was $110,100.
There will be two tiers of Medicare taxes starting January 1, 2013. For wages of $200,000 and below, the Medicare tax rate will remain at 1.45%, same as in 2012. An additional 0.9% rate of Medicare tax on wages in excess of $200,000 was enacted as part of the Affordable Care Act. There is no cap on the earnings subject to Medicare tax or the additional Medicare tax.
Other Important Information
If you are paid biweekly, there will be 27 biweekly paychecks during 2013. In most years, there are 26 biweekly paychecks. Please consult with your tax professional for how the extra biweekly paycheck may affect your tax planning for the year.
If you have questions, please contact PeopleSoft HR Support.
Phone: (573) 884-6996 or Toll Free: 1-855-524-0002
Hours: Monday-Friday 8:30am-4:30pm