Author: Rena Pirsos, XpertHR Legal Editor

As previously reported on XpertHR, the American Taxpayer Relief Act of 2012 (ATRA 2012, Pub. Law No. 112-240), which was signed into law on January 2, 2013, made several payroll related changes. The following are the most notable:

  • Did not extend the temporary two percent cut in the employee portion of the Social Security tax rate that was in effect in 2011 and 2012;
  • Increased the mandatory flat federal income tax withholding rate on supplemental wages exceeding $1 million to 39.6 percent;
  • Permanently extended the income exclusions for employer provided educational and adoption assistance benefits;
  • Restored the parity for mass transit, van pool and parking benefits ($240 per month) provided by the American Recovery and Reinvestment Act of 2009 (Pub. Law No. 111-5), retroactive to January 1, 2012 through December 31, 2013; and
  • Extended the Work Opportunity Tax Credit for all qualified employees hired through December 31, 2013.

To help employers understand the impact of the new law, XpertHR has updated the following sections of the Employment Law Manual, including Practical Examples:

Payroll > Withholding Taxes

Payroll > Taxation of Employee Compensation

Payroll > Taxation of Employee Benefits

The following Tools have also been updated:

Worked Examples

Calculation of FICA Withholding - Worked Example

Gross Repayment - Worked Example

Calculation of Gross-Up - Worked Example

Calculation of Excess Group Term Life - Worked Example

How To

How to Withhold Using the Percentage Method Withholding Tables

How to Withhold on Supplemental Wages Over $1 Million

How to Withhold on Supplemental Wages Under the Aggregate Method

How to Withhold on Supplemental Wages under the Optional Flat Rate Method

How to Determine Withholding Using the Annualized Wages Method

How to Determine Withholding Using the Average Estimated Wages Method

How to Determine Withholding Using the Cumulative Wages Method

How to Determine Withholding Using the Part-Year Employment Method