A practical guide to what’s new for business taxes in 2013
The Fiscal Cliff made for good theatre at the end of 2012, and while the political and ideological battles will continue, we have a clear view of small business tax impacts, benefits and changes in Fiscal Year (FY) 2013.
The emerging effect of the Affordable Care Act (aka Obamacare) and the (post Fiscal Cliff) American Taxpayer Relief Act of 2012 each include modifications to the tax code that will directly impact small business and/or their employees in 2013.
One noticeable change will be seen in Social Security payroll taxes. If you have employees the immediate effect for the 1st paycheck in 2013 was the elimination of the temporary 2% Social Security payroll tax reduction (employee portion) that had been in place since 2011. The tax returned to 6.2% of gross earnings. I have heard from employers that were quizzed as to why paychecks were smaller! For an employee making $30,000 per year the increased tax is $600!
Another change is minimum wage. Now if you are an Oregon based employer and you have minimum wage employees, that rate was increased $.15 per hour to $8.95 effective January 1, 2013, somewhat offsetting the employee social security tax impact.
You will also notice adjustments in Medicare taxes. Employers will now be responsible for withholding an additional 0.9% Medicare tax for an employee’s wages and compensation over $200,000 in a calendar year.
Other updates involve business tax deductions. The good news is that businesses can still deduct up to $500,000 of certain expenses, accelerate depreciation of certain production property and claim credit for research and development. All these provisions were in place in 2012 and were at risk of falling over the cliff!
There were changes in taxes for individuals, too. The fiscal cliff deal raised tax rates on income above $400,000 for individuals and $450,000 for couples, but also locked in breaks for those in the 10% and 15% brackets, for example singles with taxable income after deductions of $35,350 or less ($70,700 or less for married filing joint). The latter group also will pay no tax on gains from stock or bond sales (i.e. capital gains tax).
The rules surrounding health flexible spending accounts (FSA) were updated. FSA accounts, which allow employees to set aside pre-tax dollars from their paycheck for use in covering various medical expenses, will now have a mandatory contribution limit of $2,500 per year. This increases the tax burden for those using FSA accounts to pay for high-ticket such as orthodontia. The amount workers can set aside tax-free each month in their commuter (FSA) to cover public transit fares increased to $240 (from $125 and is in place until the end of 2013).
I would recommend exploring a Health Reimbursement Account (HRA) as an alternative that reimburses employees for out of pocket medical expenses and individual health insurance premiums (I plan to follow-up with a specific blog post on this – watch my blog at Cascade Business Support!).
Progressive employers offering worker fringe benefits will enjoy new tax incentives. If your business offers tuition reimbursement, you and your employees can exclude up to
$5,250 of those benefits from income. The new incentives also made permanent tax credits (10% or 25% of various costs) for employers that provide day care facilities, limited to $150,000 per year, in addition to a provision allowing employees to exclude up to $10,000 from taxable income that an employer provided for adoption expenses. Finally, rules were relaxed related to converting traditional 401(k) to a Roth 401(k), a big surprise!
Of course, there were other adjustments, but this article touches on the big changes pertinent to business owners.
Steve Abrew is the accounting genius behind Cascade Business Support. He is a results-oriented, detailed professional with comprehensive accounting, bookkeeping, payroll, and tax experience. His broad-cased business background and partnership approach provides a virtual controller or valuable back-office resource for your business. His extensive corporate experience and skills translate well into a passion of supporting and providing both personal and small business services. Outside of work, Steve and his wife Lauren are active “destination marathoners.”