While some of the implications of the tax deal Congress approved Tuesday are not yet clear, Case Western Reserve University officials wanted to update the community as quickly as possible about changes scheduled to take effect this month.
The federal payroll tax (officially called FICA, for Federal Insurance Contributions Act) increases from 4.2 percent to 6.2 percent on federal taxable gross income up to $113,700. In addition, the Medicare tax will increase by .9 percent, but only on annual income of more than $200,000. Finally, once additional details of the legislation are final, the Internal Revenue Service (IRS) may publish new tax rate tables.
Federal Payroll Tax (FICA): The lower rate had been part of a two-year tax “holiday” that expired Dec. 31. As a result of this change, employees will see 2 percent greater tax withholding in the pay they receive starting this month. An individual whose annual federal taxable gross income is $50,000, for example, will see a payroll tax increase of $1,000 for calendar year 2013. This increase will lead to an additional $83.33 being withheld on a monthly basis.
Medicare Tax: Again, this increase applies only to income of more than $200,000; in other words, it will affect an employee’s pay for every dollar over $200,000. For example, an individual whose income is $210,000 would pay the additional tax only on the $10,000 above the threshold, for a total additional tax burden of $90.
Tax Rates: Proposed increases will affect only taxable incomes of $400,000 and above. The university will notify the campus community should the IRS publish new tables.