How will the Tax Payer Relief Act, passed by Congress on New Year’s Day, affect your paycheck? Yesterday, Jan. 3, the Internal Revenue Service released new tables for employers to use in calculating Federal income tax withholdings. Included in this is the increase by 2 percent of the employees Social Security tax rate that came with expiration of the Social Security tax holiday on Dec. 31, 2012. The fiscal cliff deal did not include an extension of this tax cut, which was in effect for 2011 and 2012.
Employers are urged to begin withholding wages at the new rates as soon as possible; they must apply the new rates no later than Feb. 15. Any pay period in which the additional Social Security tax is not withheld must be made up in subsequent payrolls.
Employees do not need to file a new W-4 form but the IRS suggests those that have had a change in status, such as birth of a child, a marriage or a divorce, review the amount of exemptions they are claiming to ensure an appropriate amount is withheld from their pay each period to cover their tax liability.
For most taxpayers, the marginal tax rates that have been in effect for the past decade remain the same and should not affect withholding amounts under the new legislation.