‘Fiscal cliff’ averted, but paychecks will shrink

By: Tim Gould

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%.

Click here to view that last two bullet points.