PAYROLL TAX CUT EXTENDED FOR THE FIRST TWO MONTHS OF 2012
Jan. 3, 2012
The Temporary Payroll Tax Cut Continuation Act of 2011 was passed in late December and will temporarily extend a payroll tax cut for wages paid through February 29, 2012. The cut provides a 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. This reduction has been in effect since 2011.
Employers should implement the new payroll tax rate as soon as possible, but no later than Jan. 31, 2012. If an amount was over-withheld during January, employers should make an adjustment in workers’ pay no later than March 31, 2012.
The law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the extension period (the Social Security wage base for 2012 is $110,100 and $18,350 represents two months of the full-year amount). An additional income tax equal to two percent of the wages received during the two month period that exceed $18,350 (but not greater than $110,100) will be imposed on these higher-income employees. This tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax is payable in 2013 when the employee files his or her income tax return for the 2012 tax year.
