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2013 Tax Changes – What Would the 'Fiscal Cliff' Mean for Employees?
The following is a message from Payroll Manager Flo Polek.
You've probably been hearing a lot about the so-called "fiscal cliff," which would include the automatic expiration of a series of tax cut provisions at the end of the year.
How would this affect employees in 2013?
Here is a list of the provisions from the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Middle Class Tax Relief and Job Creation Act of 2012, along with other payroll-related provisions that are set to expire on Dec. 31, 2012, if Congress and the President do not take action to avoid the "fiscal cliff."
– The temporary 2% cut in employee Social Security withholding taxes (from 6.2% to 4.2%) would expire, and the rate in 2013 would go back to 6.2%.
– The Social Security tax rate of 6.2% and the Medicare tax rate of 1.45% would be 7.65% for 2013 up to the Social Security wage base. The maximum Social Security tax employees and employers would pay in 2013 would be $7,049.40. This would be an increase of $2,425.20 for employees.
– The lowest income tax bracket would be 15%, eliminating the 10% income tax bracket. The top four brackets would change from 25%, 28%, 33%, and 35%, to 28%, 31%, 36%, and 39.6%.
– Supplemental Income Tax withholding rates would increase from 25% to 28%.
– Educational Assistance: The graduate educational assistance provision would expire for amounts paid after Dec. 31, 2012 and would be taxable to employees, spouses, and dependents at the rate of 28%.