Between the American Taxpayer Relief Act of 2012, enacted on
Jan. 1, 2013 to avert the fiscal cliff, and the phase-in of new
rules from the Patient Protection and Affordable Care Act, a number
of new tax rules may affect executive compensation in 2013.
The new higher tax bracket of 39.6% is for very high earners and
applies to withholding from supplemental wages in excess of $1
million. Supplemental wages such as bonuses and income from equity
awards are subject to special withholding. The employer can elect
to combine supplemental wages with regular wages and withhold based
on the total, or can elect to withhold at a flat rate of 25%
(unchanged from 2012) on the supplemental wages. For supplemental
wages in excess of $1 million paid in 2013, however, the employer
must withhold at a flat rate of 39.6%. The IRS recently ruled that
the withholding cannot exceed the 39.6%. If the employee expects to
owe more than the amounts withheld, he or she must either arrange
for
