There's just one more business day before the new year, but the Treasury Department and the IRS won’t issue a guidance for how employers should calculate 2013 income tax withholding until the fiscal cliff deadline of December 31 has passed. Official income tax withholding tables for 2012 apply only to wages paid through December 2012 and, barring a different solution from Congress and the President by Monday, income tax rates are scheduled to increase for nearly all taxpayers.
What are employers to do if they need to process their first payroll of 2013 before new income tax tables or any guidance is issued? According to the American Payroll Association, the “only workable option” is to “continue to use the 2012 withholding tables.”
But calculating withholding is not the only unresolved payroll issue, the APA warns. Here are other imminent rate increases and expired exclusions employers must consider:
- Supplemental wages and bonuses paid after December 31 will be subject to higher tax;
- Withholding on payments subject to backup withholding because of a missing or incorrect Taxpayer Identification Number is set to increase;
- Employee social security tax rate is set to increase;
- Amounts paid on behalf of or reimbursed to employees under the educational assistance plan will no longer be tax-free;
- Amounts paid for services for certain government health professions scholarship programs will no longer be tax-free;
- The Work Opportunity Tax Credit for hiring certain qualified veterans is not available for those hired after December 31, 2012;
- Certain provisions related to employer-provided adoption assistance expire.