The Senate worked into the night on the so-called “fiscal cliff.” This morning, we learned that the Senate passed a bill that will make changes to tax rates, apparently keeping the existing tax rates in place for those with $400,000 or less of taxable income ($450,000 for married persons, filing jointly). I’m basing this on scrolling “Alerts” on the news channels; I haven’t read the bill, and I don’t intend to. After all, the House hasn’t agreed to anything yet, so what’s the point?
However, while the U.S. Congress tries to get its act together, the IRS did what it has to do–it provided guidance for employers with respect to tax withholding based on the facts as they currently exist. That guidance is in IRS Notice 1036. You can find a link to that Notice here.
Since the “Bush tax cuts” officially expired as of midnight last night, the IRS yesterday issued withholding tables based on the new, higher tax rates.
The IRS did noteย the obvious fact that Congress is stumbling around, trying to do something, anything to address taxes (actually, the IRS didn’t say it like that–it just said that Congress is currently considering legislation that could affect tax rates). The IRS said that if legislation is enacted (as we all expect will happen), it will issue new corresponding tax withholding tables after such legislation is passed.
At this point, though, the IRS tables issued on December 31, 2012, reflect the expiration of the lower tax rates, and the IRS says that employers should also begin withholding Social Security tax at the rate of 6.2 percent of wages paid following the expiration of the temporary 2% payroll tax cut in effect for 2011 and 2012.
The updated tables issued today show the new rates for 2013, which reflect the expiration of the 2001 and 2003 tax cuts. In addition, employers should also begin withholding Social Security tax at the rate of 6.2 percent of wages paid following the expiration of the temporary two-percentage-point payroll tax cut in effect for 2011 and 2012.
The IRS instructs employers to start using the new withholding tables and correct the amount of Social Security tax withheld as soon as possible in 2013, but not later than February 15, 2013. For any Social Security tax that is under-withheld before that date, employers should make the appropriate adjustment in workers’ pay as soon as possible, but not later than March 31, 2013.
American taxpayers and employers need to buckle in–it’s likely to be a bumpy ride early in 2013.
Happy New Year!