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Fiscal Cliff Watch: IRS OKs using 2012 withholding rate for now

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Because the White House and Congress have yet to agree on tax legislation to avert a plunge over the “fiscal cliff” on Jan. 1, employers are in a bind as they set up payroll processing for the first week of 2013. Without 2013 withholding tables, it’s impossible to know how to calculate federal payroll taxes and employee take-home pay.

Now the IRS has offered guidance that can let the paperwork proceed, at least for the short term.

According to John Tuzynski, the IRS’ chief of employment tax policy, employers should continue to use 2012 withholding tables and personal exemption amounts until further notice.

Using the old withholding tables is the easy part. Remember, the 4.2% employee Social Security tax rate expires on Dec. 31. The proper tax rate is based on when employees are paid, not when the wages were earned. So, unless there is some really last-minute legislation extending the 4.2% rate, for paychecks issued in January (and that are being processed right now), use the 6.2% employee rate.

For supplemental wages under $1 million, the flat supplemental withholding rate will increase to 28%, from 25%, for supplemental wages paid after Jan. 1. The mandatory flat withholding rate on supplemental pay exceeding $1 million will increase to 39.6%, from 35%.

For back-up withholding on payments made to independent contractors after Jan. 1, the rate will increase to 28% and 31%.

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