Employers and the American Taxpayer Relief Act of 2012

On New Year’s Day, Congress passed the American Taxpayer Relief Act of 2012 to avoid the “fiscal cliff.” This legislation makes several important changes to HR-related topics, as follows:

• It ended the Social Security tax reprieve that held withholding at 4.2% for employees for the past two years. Social Security withholding returned to 6.2% as of January 1, 2013.

• It created a tax increase for individuals earning more than $400,000 per year.

• It permanently extended employer-provided education assistance programs allowing up to $5,250 to be excluded from income per year.

• It extended federal emergency unemployment benefits for a year.

• It resurrected the “transit parity” rule, which provides the same level of benefits for mass transit and carpooling as employee parking (this had expired at the end of 2011, leaving the parking benefit much higher). But, the benefit is only extended through 2013 (and retroactive for 2012).

• It created new conversion rules for 401(k)s and other retirement plans to Roth accounts.

Employers should explore the details of these changes with their tax advisor.