On Friday, the IRS issued newly revised percentage withholding tables to implement the rates that will be in effect this year now that the American Taxpayer Relief Act, H.R. 8, has been enacted (Notice 1036 (rev. Jan. 2013), IR-2013-1). The tax rates in the tables are 10%, 15%, 25%, 28%, 33%, 35%, and the new 39.6% rate that applies to income above $400,000 for individuals, $425,000 for heads of households, and $450,000 for married filing jointly. These withholding tables replace the ones issued in December that contained the tax rates that would have gone into effect automatically if a deal had not been reached (Notice 1036 (rev. Dec. 2012)). Employers should use the new withholding tables as soon as possible, but, in any event, no later than Feb. 15, 2013.
The IRS also announced that the rate of withholding for the employee portion of Social Security tax, which had been lowered to 4.2% in 2011 and 2012 as part of the stimulus, has reverted to 6.2% as of the beginning of 2013. Employers are required to implement the 6.2% rate as soon as possible, but no later than Feb. 15, 2013. After implementing the increased Social Security tax, employers should correct any underwithholding of the tax as soon as possible, but not later than March 31. The notice also restates the wage base for Social Security tax for 2013 of $113,700.
Notice 1036 reiterates the withholding requirements for the new 0.9% additional Medicare tax on wages in excess of $200,000. Employers must begin withholding the 0.9% tax on employees (there is no employer portion) in the pay period in which the employer pays more than $200,000 and continue until the end of the calendar year. IR-2013-1 explains that employers and payroll companies must implement these new rules and that employees need not take any action, such as completing a new Form W-4, Employee’s Withholding Allowance Certificate. Employees should nonetheless review their withholding every year and complete a new Form W-4 if circumstances warrant a change.