Expiring Federal Tax Provision Will Impact Paychecks

Workers across U.S. to see less take-home pay

A change in the Social Security tax will increase the amount taken out of paychecks for employees across the country.

While steep increases in tax rates from the "fiscal cliff" were avoided for most Duke staff and faculty this week, employees at Duke and across the nation will see smaller paychecks beginning this month due to an expiring federal provision on the amount employees pay in Social Security tax.

In 2010, President Barack Obama enacted the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which provided a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid for 2011. The reduction in taxes was extended into 2012 but expired on Jan. 1, causing that tax withholding to go back to 6.2 percent.

Since the president and Congress did not extend the tax cut again, this will cause a decrease in take-home pay for employees across the country, including Duke University and Duke University Health System.

"This is not a Duke policy, this is federal legislation," said Anne Comilloni, director of operations for Corporate Payroll Services.

Because Duke's payroll is calculated in advance, paychecks in January will reflect this change. An extra 2 percent in Social Security tax will be taken out since the withholding rate moved from 4.2 to 6.2 percent on Jan. 1, 2013.

If, for example, an employee's annual taxable gross of $30,000, his or her Social Security tax will increase by about $600 over a year.

Federal income tax withholding for the majority of Duke employees should decline slightly beginning in January, for taxable income up to $400,000. Federal tax withholding will increase for employees with taxable income greater than $400,000. The 2013 federal income tax rates, which were just approved by Congress on Jan. 2, will not be reflected in the Jan. 11 biweekly payments because payroll had to be processed before 2013 rates were approved.

In other tax-related news, Congress permanently extended the provision to exclude employer-provided tuition assistance, up to a maximum of $5,250 annually, as taxable income. This means reimbursement for college classes through Duke's Employee Tuition Assistance program will not change.

For details about these and other tax changes for 2013, visit the Duke Payroll website.