Temporary Extension of the Social Security Tax Cut
The recently signed Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding is said to have no effect on employees’ future Social Security benefits.
Employers should implement the new payroll tax rate as soon as possible in 2012, but no later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but no later than March 31, 2012.
Employers and payroll companies will handle the withholding changes, so workers are not required to take any additional action.
With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, we will closely monitor the situation for future legislation changes.