Congress passed the American Taxpayer Relief Act, preventing the U.S. from going over the impending “fiscal cliff”. What does this law mean for employers?
Below is a quick reference guide as to the changes the new law made:
- Does not include an extension of the 2 percent payroll tax cut of the Social Security (FICA) employee tax on the first $113,700 of wages. The employee-paid portion of the Social Security FICA tax increased on all wage earners from 4.2 percent to 6.2 percent beginning Jan. 1, 2013. The portion of the tax paid by employers remains at 6.2 percent of employee wages, for a total Social Security FICA tax of 12.4 percent.
- Permanently extends employer-provided education assistance (Section 127 of the Internal Revenue Code), which allows an employee to exclude from income up to $5,250 per year in educational assistance at the undergraduate and graduate level regardless of whether the education is job-related.
- Extends the increase in the monthly tax exclusion for transit and vanpool benefits through 2013. The new law makes the $240 per month limit on transit costs retroactive to January 2012.
- Makes permanent the income exclusion for employer-provided adoption assistance benefits and the expansion of the adoption tax credit made by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The benefit limit is still $10,000.
- Makes permanent a tax credit for employers that provide child-care services that had been subject to a sunset provision under EGTRRA.
- Permits participants in pretax 401(k)s, 403(b)s and similar defined contribution retirement plans to elect to transfer amounts to a designated Roth 401(k) account, if available in their plan, at any time, with the transfer treated as a taxable qualified rollover contribution. While participants must pay income tax on funds transferred to the Roth 401(k) account, disbursements from the Roth account paid during their retirement years are made tax-free.
- Extends federal emergency unemployment benefits for one year.
- Reinstates and extends the Work Opportunity Tax Credit through 2013.
- Reverses a $600 deduction in the $3,000 credit for child and dependent care that was set to take effect on Jan. 1, 2013.
Reference: Miller, S. (1/2/2013) Fiscal Cliff’ Law Affects Payroll Tax Withholding and Employee Benefits Law addresses Roth 401(k) conversions, tuition assistance and transit subsidies, among other benefits. SHRM.org
