As of New Year’s Day, a number of tax changes and payroll tax updates have occurred that affect businesses. There have been tax increases and other requirements that were approved prior to New Year’s Day as well, notably in the connection with healthcare programs. Some of these changes include higher rates on several taxes that affect small-business owners, and also include new credits and deduction options.
Many small business owners may have had to increase withholding or estimated-tax payments to adjust for higher income taxes and Medicare tax rates that went into effect in the new year. The 2013 Social Security Wage base has increased by 3.3%, and there is no limit to the wages subject to the Medicare tax, so all covered wages are subject to the 1.45% tax. Also, the tax rates on dividends increased for those with high incomes, which could affect owners of businesses set up as C corporations, making them less tax efficient than a sole proprietorship or an entity such as a partnership or a subchapter S corporation.
Managing director of CBIZ MHM consulting firm, Carl J. Giardano, reported that several deductions and credits coveted by small businesses have been renewed, expanded, or reinstated retroactively. For example, the amount of the Section 179 deduction, which allows expenditures on capital items like factory equipment to be written off immediately, rather than depreciated gradually, has been raised from $125,000 to $500,000. Also, the Research Tax Credit and the Work Opportunities Tax Credit have both been brought back and made retroactive to 2012. The Research Tax Credit is for 20% of research expenditure that exceeds a baseline amount, or 14% using a different formulation, and the Work Opportunities Tax Credit is for 40% of varying portions of wages for new employees in certain fields.
Another change this year is the amount of planning that will be needed as the Jan. 1, 2014 deadline approaches for important requirements of the Affordable Care Act. A business with 50 or more employees who each work at least 30 hours a week must offer them health insurance that meets certain criteria. If it doesn’t, and if any employees get subsidized coverage at a government insurance exchange, the business is subject to large fines. J.D. Piro, head of the legal group of health and benefits practice at the Aon Hewitt consulting firm, advises that small businesses are going to have to conduct tests to make sure their coverage is affordable and to make sure they’ve offered it to full-time employees.
De Aenlle, Conrad “For Small Businesses, Tax Law Has Become a Moving Target” 2/9/13
Forbes.com “4 Important 2013 Payroll Updates & Tax Changes For Small Business” 1/2/13