Woman Filing Her 2012 - 2013 Taxes

2013 Changes to the Payroll Tax

Within the last few months we have received several questions regarding the changes in the payroll tax obligations and payroll taxes in general. Below you will find a table identifying and explaining the fundamentals of payroll taxes.

What Are Payroll Taxes?

Payroll taxes specifically refer to the Federal Insurance Contributions Act (“FICA”) and the Federal Unemployment Act (“FUTA”). The revenues collected from the FICA taxes are allocated specifically to the Social Security and Medicare programs. The FICA and FUTA taxes are paid by both employees and their employers. Employers generally withhold the employee’s contribution and the deductions are provided on the employee’s paystub; thus, the name: payroll taxes.

What Are Self Employment Taxes?

Individuals who are self-employed or independent contractors do not pay the FICA tax; rather, those individuals are subject to the Self Employment (“SE”) tax. The revenue collected from the SE tax is allocated to the same federal programs. Starting January 1, 2013 an additional Medicare tax took effect. Those who meet the threshold amount for their filing status are subject to an additional 0.90%.

Internal Revenue Code (IRC)

The Internal Revenue Code (“IRC”) is a complex and often difficult to understand. Not adhering to provisions within the tax code can be a costly mistake, even if the deviation was unintentional. If you are uncertain whether you or your business must adhere to a specific policy please contact an experienced tax attorney.

2012 – 2013 Tax Changes

Employment Tax Comparison by Business Entity

 

S-Corporation

 

Federal Insurance Contributions Act (FICA)

 

Maximum Earnings Subject to Tax

 

Employer Share
Employee Share
Employer Share
Employee Share
Social Security

6.20%

6.20%

Social Security

N/A

$113,700

Medicare

1.45%

1.45%

Medicare

N/A

N/A

 Total Rate

7.65%

7.65%

 

Cumulative FICA Tax:

15.30%

 

Federal Unemployment Tax Act (FUTA)

Maximum Earnings Subject to Tax

Default Tax Rate

6.00%

$7,000

Eligible Tax Credit

5.40%

Total Rate

0.06%

 

 

 

 

 

 

 

Limited Liability Company, Partnership, and Sole Proprietorship

 

Self-Employment Tax (SE tax)

 

Maximum Earnings Subject to Tax

Social Security

12.40%

$113,700

Medicare

2.90%

N/A

Total Rate

15.30%

 

 

Who pays SE tax?
  1. If net earnings from self-employment (excluding church employee income) were $400 or more; or
  2. A church employee with income of $108.28 or more.
 

Additional Medicare Tax

Applies to FICA and SE taxes exceeding a threshold amount based on the filing status

Tax Rate:

0.90%

Filing Status

Threshold Amount

Married filing jointly

$250,000

 

 

 

Married filing separately

$125,000

Single

$200,000

Head of household

(with qualifying person)

$200,000

Qualifying widow(er)

(with dependent child)

$200,000

 

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