The American Taxpayer Relief Act of 2012 (ATRA) was signed into law last month to avert the “fiscal cliff.”Key tax-related items that may be of interest to employers and employees include:
- Adoption Assistance Benefits. ATRA permanently extends the federal tax rules which allow an employee to exclude from gross income qualified adoption expenses paid by an employer, as well as the tax credit for qualified adoption expenses paid by an employee, for taxable years beginning after December 31, 2012.
- Dependent Care Tax Credit. The dependent care tax credit allows an employee a credit for a certain percentage of child care expenses for children under 13 and disabled dependents. ATRA extends the previous cap on the total expenses qualifying for the credit, at $3,000 for one child or $6,000 for two or more children, for taxable years beginning after December 31, 2012.
- Qualified Educational Assistance Programs. Under ATRA, an employee may continue to exclude from gross income up to $5,250 for income and employment tax purposes per year ofemployer-provided education assistance for taxable years beginning after December 31, 2012.
- Transportation Benefits. ATRA increased the monthly exclusion for employer-provided commuter-highway transportation and transit passes from $125 to $240 per participating employee (the same as the exclusion for qualified parking benefits), retroactively for the period of January 1, 2012 through December 31, 2012. (Note: The inflation-adjustedmaximum monthly excludable amount for these benefits in 2013 is $245.)
Employee Payroll Tax Cut Not Extended
ATRA did not affect the payroll tax rates for 2013. As a result, employers are required to withhold Social Security tax at the rate of 6.2% of wages paid (up to the first $113,700 of earnings) following the expiration of the temporary two-percentage-point payroll tax cut in effect for 2011 and 2012.
Employers should correct the amount of Social Security tax withheld from employees’ paychecks as soon as possible in 2013, but not later than February 15. For any Social Security tax under-withheld before that date, employers should make the appropriate adjustment in workers’ pay as soon as possible, but not later than March 31, 2013.