New Year Brings Important Changes To Your Benefits and Payroll Taxes
The new year brings a number of changes in the tax treatment of some of your employee benefits and payroll taxes.
The tax relief bill from 2010 included items that expired at the end of 2012. As a result of the recently-enacted American Taxpayer Relief Act of 2012, the following changes have occurred:
- The “payroll tax holiday,” which temporarily reduced the amount of FICA (Social Security) tax that employees and employers paid, has ended. The FICA rates now have increased by two percent, from 4.20 percent to 6.20 percent, on income up to $113,700; and
- IRC Section 127, which provides employer assistance for both graduate and undergraduate course work and allows employees to exclude up to $5,250 a year in employer-provided tuition assistance from income, has been made permanent.
To comply with health care reform, we have lowered the medical flexible spending account limit to $2,500 for 2013. Additionally, your 2012 W-2 form will include new data in Box 12-Code DD for reporting health plan costs. There is no change in taxability, as it is a reporting requirement only.
Other changes and reminders include:
- The elective deferral limit for the 403(b) retirement plan has increased to $17,500, and the catch-up contribution limit for those ages 50 and older remains at $5,500.
- The limitation for defined contribution plans under Section 415(c)(1)(A) has increased to $51,000. The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) has increased to $255,000.
- For faculty and staff earning more than $200,000, Medicare rates have increased by 0.9 percent from 1.45 percent. The FICA Social Security taxable wage base has increased to $113,700, and there will continue to be no limit to the taxable wage base for Medicare.
- The 2013 tax exclusion for parking has increased to $245. The tax exclusion for transit has been retroactively reinstated to $240 for 2012, and has increased to $245 for 2013.
- Foreign-earned income tax exclusion amounts have increased to $97,600.
Information on the impact of the FICA tax change on your paycheck can be found in this excerpt from a recent RIA Payroll Guide Newsletter.
Contact Ann Joiner in Human Resources or Carol Wisniewski in Payroll if you have any questions.
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