Payroll Tax Cut Temporarily Extended
The 2% cut in social security withholding in effect during 2011 has been extended until February 29, 2012. The Temporary Payroll Tax Cut Continuation Act of 2011 was signed by President Obama on December 23, 2011. The temporary cut means that employees will only have 4.2% of their wages withheld for social security as opposed to the normal 6.2%. Employers are required to comply with the law by January 31, 2012. Any social security tax over withheld before the employer has complied will then be adjusted in the employee’s pay by March 31, 2012.
If an employee receives more than $18,350 in wages during the two month period the tax cut is in effect, a recapture provision will apply. The recapture is equal to 2% of the wages in excess of $18,350 and up to $110,100. The recapture tax is an additional income tax liability imposed only on higher income employees and is paid when the taxpayer files their 2012 tax return. The additional tax cannot be reduced by credits or deductions.
Stay tuned for further updates as there have been talks within Congress to extend the tax cut through 2012.
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