Now, maybe it’s not the IRS’s ‘fault’, but rather the media’s interpretation, but I can assure you everyone’s net pay in 2013 will be going down.
In response to the Congressional inaction about 2013 income tax rates with respect to the ‘fiscal cliff’, the IRS announced that employers should continue to withhold federal taxes using the 2012 tables, implying that nothing will change.
The IRS actually gets the tables from the US Treasury Department, and until they actually get the 2013 tables from the Treasury, employers should keep using the 2012 tables in 2013.
So, in response to this, the various TV and radio media are reporting that the average middle class taxpayer in the US can rest assured that nothing will be changing in their paycheck. This is NOT true.
The Social Security tax rate deducted from employee’s paychecks was reduced from 6.2% to 4.2% two years ago, and, by law, will end on December 31, 2012. This was referred to as the ‘Payroll Tax Holiday’.
Once ended, the Social Security tax of 6.2% will be restored, giving EVERY taxpayer a 2% reduction in their paycheck in 2013.
Every piece of payroll software I know, including Quickbooks has already adjusted their tax tables for 2013 to reflect this. In fact, I’ve already had one of my clients call me who uses Quickbooks, wanting to know why all his employee’s net paychecks went down!
The Social Security tax ‘cut’ is not considered part of the Federal Withholding done on an employee paycheck.
Almost every discussion of the ‘Fiscal Cliff’ speculates whether this ‘payroll tax holiday’ will continue or not, but at this writing the law says it will be 6.2% beginning January 1, 2013, so that’s what everyone’s following. This IRS proclamation does not address the social security rate going up. I’m not saying the IRS is totally wrong, but the IRS is giving everyone in the country the wrong impression that the average Joe’s paycheck will be staying the same until Congress and the White House get their act together.
I’ve already been in touch with several media outlets on this, and they’re all trying to understand this mess!
As an employer, are you prepared and confident to advise your employee’s on what’s going on with respect to the ‘fiscal cliff’? Is your adviser keeping you apprised as to how this can be affecting both you and your employees. Does this all seem very frustrating to you, and you wish there were some simple answers.
Presented by Steven A Feinberg, CPA of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire, with more than twenty- five years experience on Federal and New Hampshire issues affecting small business, and specializes in tax, payroll and business planning for his clients throughout the year. Steve is a recognized member-contributor of the book, Six Steps to Small Business Success. For additional information, you are encouraged to email Steve at [email protected] or call (603) 434-2775.
Steven A. Feinberg – www.AppletreeBusiness.com – Get Appletree Blog via Email – Follow CPAsteve on Twitter
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