The IRS has updated income tax withholding tables for 2013 in light of the American Taxpayer Relief Act of 2012, signed into law Jan. 2. And because the payroll tax holiday hasn’t been extended, employers must withhold Social Security tax at the rate of 6.2% rather than at the 4.2% rate that applied in 2011 and 2012. This means that your employees might be in for a bit of a shock when they get that paycheck. It is kind of like a double whammy though the payroll tax holiday is not an increase — simply going back to the rates that previously applied.
According to the IRS, employers should start using the revised withholding tables and withholding the correct amount of Social Security tax “as soon as possible in 2013, but not later than Feb. 15, 2013.” It might be a good idea to communicate these changes — characterizing them as exactly what they are — to your employees prior to that first paycheck reflecting the changes. As always, effective communication is extremely important.
Employees don’t have to do anything, but they may want to consider revising their W-4 if they have gotten married or divorced, had a child or bought a home. Revising a W-4 may also be a good idea for people who hold multiple jobs or if when they file their 2012 return they have a large balance due or receive a large refund.