Expired Cut in Payroll Tax Rate Means Higher Withholding for Employees

While recent congressional action on the “fiscal cliff” means income tax rates will not increase for the vast majority of Americans, lack of congressional action will mean an increase in the payroll tax rate for at least the near future.

Last year, the payroll tax rate was 4.2% for employees and 6.2% for employers under the Middle Class Tax Relief and Job Creation Act of 2012. The 2% cut in the payroll tax included in that law expired on December 31, 2012. 

Congress is considering legislation to further extend the lower rate. However, until any bill is approved and signed into law, the employee withholding rate will return to 6.2% (the employer rate remains unchanged, also at 6.2%). This will take effect with paychecks starting in January.

The FICA tax rate, which is the combined Social Security tax rate of 6.2% and the Medicare tax rate of 1.45%, will be 7.65% for 2013 on income up to $113,700. The maximum social security tax employees and employers will each pay in 2013 is $7,049.40. This will be an increase of $2,425.20 for employees and $223.20 for employers.  The Medicare rate, also matched by the employer, is unchanged at 1.45%.

If you have any questions about your tax withholdings, please contact the DMPS payroll department at 242-7747.