Social Security taxes officially went up on New Year’s Day as the withholding rate returned to 6.2 percent for employees. This action officially ends the 2 percent payroll tax holiday in effect for 2011 and 2012.
Social Security tax, along with Medicare tax, is a mandatory contribution under the Federal Insurance Contribution Act (FICA). Employers deduct fixed amounts from employee’s paychecks to fund Social Security and Medicare, and traditionally match the amounts deducted.
However, for the past two years, employers contributed 6.2 percent to Social Security while employees contributed 4.2 percent. The Medicare tax remained at 1.45 percent. The payroll tax holiday was a temporary measure designed to stimulate the economy, but was allowed to expire for 2013.
The IRS advises that employers start using the 6.2 percent rate for employee withholding as soon as possible and no later than Feb. 15, 2013. Employers should make any adjustments to correct under-withholding no later than March 31, 2013 (the end of the first quarter). For more information on withholding, refer to Notice 1036 from the Internal Revenue Service.
This article was provided by Patriot Software, Inc., is a developer of online software for U.S. small businesses, including online payroll software, applicant tracking software, human resources software, an employee portal, and 1099 software. Patriot Software also offers a payroll tax filing service for payroll customers, and is currently developing bookkeeping software and a website builder. For more information, visit www.PatriotSoftware.com.