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Daycare Payroll: 2013 Tax Changes

Payroll CheckIf you operate a child care business, you’ll want to know how recent changes to payroll related taxes may affect your daycare payroll for 2013.

Federal Income Tax

Rates will remain the same for persons making up to $400,000 per year ($450,000 for married couples filing jointly). Although the tables are slightly different for 2013, there will be very little difference in the amount withheld for persons under these thresholds.

Social Security

The employee share of Social Security reverts back to its previous rate of 6.2%. In recent years the rate had been temporarily reduced to 4.2% to help spur consumer spending and aid the economy. That provision has expired, so employees will see 2% more coming out of their checks in 2013 for Social Security. If you happen to post your first payroll or two of the New Year using the old rates, and are using Daycare Payroll Software from Procare, don’t worry. The difference will be made up on the next paycheck issued to each person, once you install Tax Tables for the New Year. The Social Security withholding will be automatically adjusted to account for the increase.

Medicare

Although the base rate for Medicare remains the same, at 1.45%, there is now a 0.9% increase for earnings above $200,000 ($250,000 for married couples filing jointly). Therefore, in order to calculate the proper amount to withhold, payroll software programs will need to know the person’s filing status for Medicare. This should be the same as the federal filing status they indicated on their W4, although you may need to specify their status for Medicare separately within your payroll software. See: How to set Medicare Filing Status in Procare

FUTA & SUTA (Federal Unemployment, State Unemployment)

Although FUTA does not affect employee withholdings, since it is paid by the employer only, it does affect your tax deposit as a child care business owner. Taxes are paid on the first $7,000 in earnings for each employee, which is referred to as the “wage base”. For 2013 FUTA is scheduled to remain at 6.0%. Employers receive an offset credit for the amount paid for SUTA (State Unemployment) of up to 5.4%. If you qualify for the full 5.4% credit your net rate would be 0.6% (6.0 – 5.4 = 0.6). There are rate changes for a number of states in 2013, known as Credit Reduction States. Please confirm your rate with your tax adviser or the IRS. See: Changing FUTA & SUTA in Procare

We’ll continue to keep you in the loop regarding any payroll tax changes as the year unfolds. Until next time, cheers!

-Phil

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If you have questions or comments about this article (or suggestions for another article) I’d be pleased to hear from you. Drop me a note at phil@procaresoftware.com.

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