Two pieces of legislation have been signed by President Obama affecting employee paychecks. The American Taxpayer Relief Act of 2012 was enacted on January 2, 2013, which averted the “fiscal cliff”. In addition, the Affordable Care Act provides for an additional Medicare tax. One or more of the several tax rate changes discussed below will impact your paychecks in 2013.
OASDI and Medicare Taxes
Changes to the OASDI and Medicare taxes noted below have been implemented for January 2013 pay periods.
All faculty and staff will notice an increase in the OASDI /EE taxes to a rate of 6.2% on earnings paid on or after January 1, 2013. The temporary rate reduction to 4.2% in effect during 2011 and 2012 for the employee portion of OASDI taxes expired at the end of 2012. The American Taxpayer Relief Act of 2012 did not extend this temporary tax cut for employees, so employees will pay the full rate of 6.2% for that portion of the Federal Insurance Contributions Act (FICA) tax. The maximum earnings subject to OASDI taxes are capped at $113,700 in 2013. In 2012, the cap was $110,100.
There are 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.
Federal Income Withholding Rates
Updated federal income tax withholding rates for 2013, which reflect legislation signed January 2 by President Obama, were released January 3 by the Internal Revenue Service. 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.