Two Percent Increase in Social Security Withholding is Just One of Many Changes Outlined in Our 2013 Payroll Taxes and Withholdings Update: Part 1
With the New Year come changes in requirements regarding payroll taxes. This four-part blog series summarizes the 2013 changes that could effective you and your business. In the first blog, we review Social Security Tax Withholding, Additional Medicare Withholding, And Federal Unemployment Tax and State Unemployment Tax.
Social Security Tax Withholding
The Social Security tax wage base for employees will increase to $113,700.00. The Social Security tax rate for employees will increase to 6.2% and employers remain unchanged at 6.2%. The combined Social Security and Medicare Hospital Insurance tax rate for employees will increase to 7.65% and employers remain unchanged at 7.65%. The additional Medicare Hospital Insurance tax will apply on all wages in excess of $113,700.00 and will be imposed at a rate of 1.45%. The same rate will apply for employers.
The earnings base for self-employment tax will also increase to $113,700.00 with an effective rate increasing to 15.30%. The additional Medicare Hospital Insurance tax will apply on all self-employment income in excess of $113,700.00 at an effective rate of 2.9% in 2013. No tax is payable if annual net earnings are less than $400.00.
Additional Medicare Tax Withholding – this is new for 2013!
All wages currently subject to Medicare Tax are subject to the additional .9% when wages exceed the applicable threshold for an individual’s filing status. Filing status and threshold amounts are as follows: Married filing jointly – $250,000.00; Married filing separately – $125,000.00; and Single – $200,000.00.
Federal Unemployment Tax (FUTA)
For 2013, the maximum taxable wage base will be the first $7,000.00 of wages. The tax rate will remain at 6% with the credit for payment of state unemployment tax remaining at 5.4%. This results in the effective rate remaining at .6%.
State Unemployment Tax (SUTA)
The taxable wage base for Missouri will remain at $13,000.00 in 2013 and Illinois will decrease to $12,900.00. Each state will issue your new contribution rate, effective January 1, 2013, based on your employment history. If advantageous, Missouri permits a voluntary payment to reduce the rate as long as the payment is received by January 15, 2013.
Both states require employers, who no longer have unemployment tax liability, to formally close their unemployment accounts. Severe penalties accrue if quarterly reports are not filed and accounts are not formally closed – even if no unemployment tax liability exists.
If you have questions about these changes, please contact your Anders advisor. We will address additional changes in the next three blogs on Payroll and Withholding.