KENTUCKY (12/6/12) – Wage earners can expect one withholding to increase on January 1st. The Medicare Tax withheld from paychecks will increase to 2.35% from the current 1.45%. Furthermore, a new 3.8% tax for Medicare will be imposed on unearned income for 2013.
Additionally, wage earners could see a 2% increase in Social Security taxes as the “temporary” reduction expires. The payroll tax was reduced to the current 4.2% from 6.2% to help stimulate the economy. That reduction is set to expire on December 31st unless it is extended by Congress and the President as a part of current budget negotiations. Employer contributions which traditionally matched employee contributions were not decreased and have continued at the 6.2%.
Employees have enjoyed the extra money in their paycheck with the lower Social Security withholding; however, there is a potential downside assuming Social Security survives; the lower contributions will result in a lower benefit upon retirement.
Employees will also see the value of health benefits paid by their employers on their 2012 W-2 Form. The value of the benefit is not taxed for 2012. Employers should make sure they include the information on 2012 W-2s.
Employers are keeping a close eye on the new regulations and are plotting compliance strategies. The rules are different for companies with fewer than 50 employees. Expect companies to work very hard to stay under that threshold.
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