Temporary Tax Cuts

Were you expecting a lower payroll check in January?

The Congress has accepted and the President has signed an extension of the amount that will be deducted as “payroll taxes” – social security or FICA taxes – so the amount deducted from your paycheck will not [yet] change from what you had in 2011.

Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that was in effect for 2011. The “Temporary Payroll Tax Cut Continuation Act of 2011” extends the two percentage point payroll tax cut for employees that was in effect for this past year 2011 for two months. [This reduced Social Security withholding will have no effect on future Social Security benefits.]

Under the Congressional package which has been accepted, the employee’s share of the FICA tax will stay at the current level -- 4.2 percent of wages-- through February 29, 2012. In the absence of Congressional action, it would have reverted to the usual 6.2 percent next month.

The government will also continue paying unemployment insurance benefits under current policy through February.

Employers will be implementing the new payroll tax rate as soon as possible in 2012 but they need to do so not later than January 31, 2012. (For any Social Security tax over-withheld during January, in case some employers were not sure what Congress would do, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.)

Employers and payroll companies will handle the withholding changes, so workers most likely will not need to take any additional action.

Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period. (The IRS will issue additional guidance as needed to implement the provisions of this two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to a new “recapture” provision.)

There are many other facets to the changes and PRO-TAX will keep you up to date here on these pages, so be sure to check back often. In any event, we suggest you contact your professional PRO-TAX preparer who will be glad to lead you through all the details of this legislation.  You will find experts there with the necessary skills to help! Call us at 1-800-809-2829, or Click here  for a guide to our locations.

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