Although the so-called “fiscal cliff” was averted, certain payroll tax changes took effect on January 1, 2013. Employers should be aware of the following changes to Social Security and Medicare tax withholdings for wages earned in this new year:
1. Social Security – In 2013, the Social Security wage base increased to $113,700. Furthermore, on December 31, 2012 the Social Security payroll tax cut expired. In 2011 and 2012 this payroll tax cut reduced employee-paid Social Security taxes by 2% to 4.2%. In 2013, the Social Security withholding rate for both employees and employers will revert back to 6.2% of wages under the Social Security wage base.
2. Medicare – The base Medicare tax rate remained unchanged for 2013 at 1.45%. However, starting January 1, 2013, additional Medicare taxes of 0.9% will apply to wages paid in excess of $200,000. Employers will not pay this tax but will be required to withhold it from wages paid over $200,000.