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Employers Choose to Use 2012 Methods For Tax Withholding on First Payrolls of 2013

Wednesday, January 2, 2013

Organizations across the country generally are using 2012 federal income tax withholding methods for the first payrolls in 2013, several payroll professionals and representatives told BNA on Dec. 31.

Employers also are increasing the Social Security tax rate for employees to 6.2 percent from 4.2 percent withheld from pay.

Treatment of Supplemental Payments Not Consistent

A quandary exists for employers as to whether to continue to use the lower income tax withholding rates from 2012 for flat-rate withholding on the first supplemental payments in 2013, or apply the higher income tax bracket rates of 28 percent (for optional flat-rate withholding of supplemental pay amounts up to $1 million) and 39.6 percent (required for amounts exceeding $1 million) set to go into effect Jan. 1.

Some employers interviewed by BNA said their income tax systems were unchanged from 2012, that withholding methods and supplemental pay withholding rates did not change for the first payrolls of 2013. Other employers reported that the higher flat-rate withholding amounts would be applied to supplemental pay while continuing to follow 2012 methods for regular withholding on wages.

The American Payroll Association issued a compliance update to its members recommending the continued use of 2012 income tax withholding methods, “even though the 2012 tables state they are to be used for wages paid 'through December 2012' and income tax rates are scheduled to increase for nearly all taxpayers.” APA also suggested that employers apply the higher flat-rate withholding amounts for supplemental payments, noting “these rates apply when the payments are made, not when they are earned.”

According to APA, employers also are without guidance for federal tax levy amounts in 2013, that tax-free employer-paid educational assistance under Internal Revenue Code Section 127 lapses, and a major reduction in tax-free adoption assistance amounts goes into effect Jan. 1.

Payroll Processor Explains Withholding Policy

In an update published on its website, payroll processor Automatic Data Processing Inc. said that initial paychecks issued in 2013 would be calculated using 2012 withholding rates. After a call with senior IRS officials, ADP said it had “confirmed that, until the U.S. Treasury Department issues revised withholding tables, employers should use existing (2012) tax rates.”

ADP said that there may be confusion with these initial payments because “employees may be surprised to see no change to their income tax withholding in January.”

The website posting told clients that ADP would not recalculate any 2013 payroll amounts paid before Treasury issues new withholding tables, and suggested that clients explain to employees the taxation methods used for the early 2013 payroll dates before payments are made.

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