What the Fiscal Cliff Deal Means for UC Paychecks

2013 Federal Income Tax Rates to Increase for High-Income Earners

The long-awaited tax legislation that Congress approved on Jan. 1, 2013, and President Obama recently signed to avoid the so-called Fiscal Cliff may affect the 2013 federal income tax withholding on paychecks of UC employees.

The tax rate will go up for individuals earning $400,000 or more a year and for families making $450,000 or more. All rates reflect the annually inflation-adjusted income brackets.

UC is updating its payroll system to start withholding at the new tax rates before the Feb. 15, 2013, deadline set by the Internal Revenue Service. The new tax rates will be reflected in paychecks issued on or after Feb. 15.

Because Congress did not pass the legislation until the early part of January, UC is using the 2012 federal tax rate schedule to process payroll for paychecks issued prior to Feb. 15. However, paychecks issued on or after Jan. 1 reflect two other tax changes:

  • The employee share of OASDI (Social Security), which reverted from 4.2 percent to the historical rate of 6.2 percent on Jan. 1.
  • Increases in 2013 California income tax rates for some earners due to passage in November of Proposition 30, Governor Brown’s income and sales tax initiative to support public education, among other programs.

Note that paychecks issued in 2013 also reflect any changes in employee benefits such as insurance premium increases or changes in flexible spending account contributions.