There is a great deal of concern in the tax community generally
about unresolved tax issues, including the sunsetting tax provisions,
extenders, and lack of an alternative minimum tax (AMT) patch. However, one
group in particular—payroll professionals—has an especially pressing need for
certain tax issues to be decided in order to compute 2013 withholding. This
article details a number of these key issues.
Withholding
tables. Income tax rates are scheduled to increase on Jan. 1, 2013, if
Congress does not act before then to keep the rates at the current levels. It's
unclear whether IRS will release the 2013 withholding tables without
congressional action.
Backup
withholding. The backup withholding rate will increase from 28% to 31% on
Jan. 1, 2013, if Congress does not act to keep the income tax rates at current
levels.
Payroll
tax cut. The “payroll tax cut” has temporarily lowered the Social
Security withholding tax rate on wages earned by employees in 2011 and 2012
from 6.2% to 4.2%. Currently, there is no legislation in Congress that would
extend the payroll tax cut beyond Dec. 31, 2012, but there has been some recent
talk in Washington about either extending the cut or providing some other
payroll tax stimulus.
Commuting
benefits. Without congressional action, the annual tax-free exclusion for
the combined value of employer-provided transit passes and transportation in a
commuter highway vehicle ($125 a month in 2012) will remain unconnected to the
tax-free exclusion for qualified parking expenses ($240 a month in 2012).
Employer-provided
educational assistance.
Through Dec. 31, 2012, employers may provide up to $5,250 annually in
educational assistance to an employee on a tax-free basis. This provision will
expire on Jan. 1, 2013, without congressional action. If the provision does
expire, education expenses will only be able to be excluded from an employee's
income if the expenses qualify as a working condition fringe benefit.
Adoption
assistance. In 2012, employees may exclude from gross income up to $12,650
paid or reimbursed by an employer for qualifying adoption expenses under an
adoption assistance program. This fringe benefit will not be available in 2013
without congressional action.
koa observation: Until
some of the issues above are resolved, it is unclear whether IRS will release
the 2013 Circular E (IRS Publication 15), 2013 Form W-4, and 2013 Form 941.
