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2013 Federal Tax Legislation – What To Expect

This article was originally featured in our ADP Eye on Washington update.

Congress and the Administration continue to deliberate possible changes to tax laws that may affect payroll and employment tax administration in 2013.  In the event that no consensus is reached and the relevant laws remain unchanged, the following is provided to help ADP clients and their U.S. workers understand what to expect in early 2013.

  • Effective 1/1/2013, the 2% reduction of the employee Social Security tax rate, most recently extended through 2012 by the Middle Class Tax Relief and Job Creation Act of 2012, will end. Employee Social Security tax rates will return to 6.2% unless new legislation is enacted.  
  • Current income tax rates and other measures that were originally adopted in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA); modified by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), and extended by the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010 (TRUIRJCA), will expire on December 31, 2012. Significantly, the EGTRRA reduced income tax rates in four tax brackets and created a new 10 percent income tax bracket.

Although these laws will expire after 2012 absent legislation to extend or modify them, initial paychecks issued in 2013 may be calculated using 2012 withholding rates.  A recent telephone call with senior IRS officials confirmed that, until the U.S. Treasury Department issues revised withholding tables, employers should use existing (2012) tax rates.  This may cause some confusion, as employees may be surprised to see no change to their income tax withholding in January.

If revised withholding tables are subsequently issued, changes to withholding calculations will be effective for payrolls processed after implementation.  ADP is poised to implement any revisions very quickly.  However, any changes will be prospective, only affecting subsequent payroll checks.   Any 2013 paychecks calculated prior to issuance of new tables will not be recalculated.  Clients may wish to consider a proactive explanation to employees as 2013 payroll dates approach.

  • The Patient Protection and Affordable Care Act enacted a new “Additional Medicare Tax” of 0.9% on employee earnings over $200,000, which will go into effect in 2013.   This additional tax will be automatically calculated on earnings over $200,000, regardless of filing status. For additional information on the Additional Medicare Tax, please visit the IRS website  and our previous Eye on Washington alert on this topic.


Learn more about employment tax solutions from ADP that work with your existing payroll system.



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