Well our hardworking and astute politicians (said tongue-in-cheek) averted the big jump off the fiscal cliff in a past-the-last-minute deal. But January 1 was a change point for a number of other things that may have an impact on your bottomline, whether you are an individual or a company. Let’s look at wages and taxes in 2013.
Rise in Social Security
While keeping some things in place Congress did not extend the social security or FICA reduction of the last two years. That means all employees return to making a 6.2% contribution. According to the IRS, which has published a new withholding table, “Employers should start using the new withholding tables and correct the amount of Social Security tax withheld as soon as possible in 2013, but not later than Feb. 15, 2013. For any Social Security tax under-withheld before that date, employers should make the appropriate adjustment in workers’ pay as soon as possible, but not later than March 31, 2013.” (Click here for the IRS Guidance) The wage level qualified to have FICA withheld has risen to $113,700. This change means an additional $1000 being withheld for someone making $50,000 a year.
Taxes on HCE’s
Your highly compensated employees are going to see an increase in the taxes they must pay with a change in their tax rate. If they are making above $400,000 as an individual or a couple making $450,000 jointly their tax rate will increase from 35% to 39.6%. On a $400,000 income that is an additional $18,400 in taxes they will have to pay. One problem with this situation is that there is no definition in the bill of whether that $400,000 level is adjusted gross income or taxable income. So no one knows yet what their real amount of tax increase will be.
Minimum wage increases
On the opposite end of the spectrum January 1 saw the minimum wage increase in 10 different states. Nine of these were indexed to cost-of-living indexes and one came about as a result of new legislation. Here is the list:
- Colorado- $7.78
- Florida- $7.79, with the minimum tipped credit wage moving to $4.77
- Missouri- $7.35
- Montana- $7.80, with no tip credit permitted
- Ohio- $7.85, with the minimum cash wage for tipped employees rises to $3.93
- Oregon- $8.95, No tip credit is permitted.
- Rhode Island- $7.75
- Vermont- $8.60
- Washington- $9.19, No tip credit is permitted.
Of course all that increase is wiped out by the increase in FICA. A Washington employee working 40 per week will make an extra $6 per week under the increase. However, under the FICA increase they will be paying an additional $7.35 per week.
One thing to remember
You need to communicate these changes to your employees. Many of them don’t watch the news, many don’t read the news, and for those that have entered the workforce in the last two years this is NOT a return to the way it was, this is a tax increase. The first of their lifetime.