IRS Issues Withholding Tax Rules after the Fiscal Cliff Tax Deal

According to our tax lawyers the Internal Revenue Service issued new guidelines on withholding rules for employers just hours after President Obama signed the bill the stopped the 2013 fiscal cliff.

As explained by our tax lawyers, the guidelines establish how much employers should withhold from their workers’ paychecks this year. The IRS advises employers to start using the revised withholding tables as soon as possible, but no later than February 15.

The new tax help legislation introduced significant changes to our tax laws. The legislation raised the top tax rate on wage and salary income for couples earning above $450,000, and $400,000 for single persons. The bill also raised the top tax rate on capital gains and dividends for those households. However, the good news is that the legislation extended most of the Bush-era reductions in income tax rates.

All is not good however, along with the start of the New Year, there is a 2.0% increase in withholdings from workers’ Social Security taxes as well. In 2011 and 2012, the withholding rate was 4.2% due to a temporary tax cut that the Obama administration established to help the curb the recession. With the start of 2013, this temporary relief has thus expired.

On the tax return filing front, our tax lawyers point out that the IRS was unclear on when taxpayers could begin filing tax returns for 2012. The IRS had previously stated that the electronic-return filing season would start on January 22, but on January 2, they stated that due to reviewing the details of the new law, they have not assessed how it will impact this year’s filing season. The IRS has stated that they would soon provide the information on when filing 2012 tax returns can start for taxpayers, so stayed tuned. Traditionally tax payers can start filing paper returns in early January, as along as all of the forms are available and the taxpayer has all their information ready. However, the IRS statement suggests that taxpayers should wait until they are able to produce more guidance on the filing season.

By: Timothy S. Hart