As President Obama and congressional leaders work out a deal to prevent the nation from going over the “fiscal cliff,” a series of tax hikes for individuals and businesses appear to be on the horizon.
Payroll Taxes and Flexible Spending Contributions
Effective January 1, 2013, the 2% payroll tax cut that lowered FICA contributions during 2012, will expire. Employee contributions will increase along with the employer’s share of Social Security withholding. Under the Patient Protection and Affordable Care Act, a new Medicare payroll tax will require employers to withhold an additional 0.9% for single employees earning over $200,000 and for married taxpayers filing jointly with wages exceeding $250,000.
Under this same act, employee contributions to health care flexible spending accounts will be limited to a maximum of $2,500 per year for plan years beginning in 2013. This limit must be documented in a flexible benefits plan by December 31, 2014 and retroactive to the beginning of the 2013 plan year.
The qualified adoption assistance program, allowing an employer to reimburse an employee on a tax-free basis for up to $12,650 in expenses related to the adoption or attempted adoption of a child, will also expire December 31, 2012. These qualified expenses include reasonable and necessary adoption fees such as court costs, attorney fees, travel expenses and other direct adoption-related expenses.
In 2013, employers will be allowed to reimburse an employee for up to $5,250 in educational costs only if the costs qualify as a business expense and if the education will enhance an employee’s performance. The expenses cannot be reimbursed if the purpose is to qualify the employee for a new position or career change.
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In cooperation with NAEBA