Get ready for some employee questions – and grumbles – following the passage of the legislation that pulled us back from the “fiscal cliff.”
The four provisions in the American Taxpayer Relief Act that will most directly affect your workforce:
1. No more Payroll Tax holiday
With so much attention being given to the bullet most Americans dodged when it comes to tax hikes, many folks will likely be thrown when their first paycheck of 2013 is smaller than their last one in 2012.
That’s because even though we avoided a major income tax hike, the payroll tax holiday everyone enjoyed in 2011 and 2012 for employee Social Security taxes did expire.
That means the 4.2% rates returns to 6.2% on employee wages (up to the $113,700 taxable wage base).
In 2012, the maximum Social Security tax an employee paid was $4,624.20. In 2013, that amount increases to $7,049.40 – an additional $2,425.20 for your company’s higher wage earners.
This is something you’ll probably want to address, pronto — preferably before employees see those first pay stubs.
2. Increase in supplemental wage withholding rate
Another task for Payroll in the new law. But this one will only impact your highest wage earners and specifically those with non-traditional pay arrangements.
For supplemental wage payments over $1 million made in a year after Dec. 31, 2012, the withholding rate increases from 35% to 39.6%.
3. A return to higher commuter benefits
If your company offers a hand to employees who rely on public transportation to get to and from the office, your finance people will have new info to keep track of, thanks to the new law.
The ATRA establishes parity between the limits for parking and mass transit benefits (at the start of 2012, parking limits were raised but mass transit limits were slashed.)
That makes the limit $240 tax-free per month for both parking as well as public transportation and vanpool expenses. And it’s retroactive from Jan. 1, 2012 and will go through Dec. 31, 2013.
4. Education benefits forever
The “fiscal cliff” legislation included a provision allowing employers to provide money for educational assistance tax-free – forever. The exclusion for employer-provided educational assistance becomes permanent, under the ATRA.
You can exclude from an employee’s income up to $5,250 per year. This includes undergrad and graduate classes.
