Whatever else happens with the "fiscal cliff" negotations between the Obama Administration and Congress before the end of the month/year, it looks like payroll taxes will increase in 2013. According to the news sources I follow, the payroll tax cut seems to be off the table (no longer a part of the negotiations) as I write. This tax cut is due to expire December 31, 2012, so taking it off the table means no continuation of this lower tax rate. What does that mean?
The Payroll Tax Cut title is a short way to say that, for 2011 and 2012, the Social Security portion of FICA withholding was decreased 2% for employees and for self-employed individuals. This cut was a way to stimulate the economy by putting more money into people's pockets. Although the employer portion of the Social Security tax did not decrease for the past two years, employers have had to deal with changing their payroll tax amounts to reflect the tax change. Now they have to deal with figuring out what the payroll tax rate will be January 1, 2013.
According to the TaxGirl, the IRS is saying nothing:
We are aware that employers have questions with respect to 2013 withholding. Since Congress is still considering changes to the tax law, we continue to closely monitor the situation. We intend to issue guidance by the end of the year on appropriate withholding for 2013.
What changes do I make in my company's payroll taxes?
None right now, until we know for sure that this tax cut will not be extended. Congress is on a break for Christmas, so we'll know more next week. If the payroll tax cut is not extended, you will need to increase the Social Security portion of employee FICA withholding by 2%, starting with the first paycheck you issue in 2013. I know, that doesn't give you much time if you issue paychecks at the beginning of the month. Since the Social Security maximum starts over at $0 January 1, 2013, every employee paycheck will be affected.