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.
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
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.
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
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.