Payroll Tax Cut Extended
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T A X U P D A T E |
January 3, 2012 |
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Payroll Tax Cut Extended |
For additional information and discussion on this topic, please get in touch with your regular HW&Co. professional or contact Edward Lowe. Edward C. Lowe, CPA, MAFIS
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On December 23, 2011, Congress passed and President Obama signed into law the “Temporary Payroll Tax Cut Continuation Act of 2011”. This tax law consists of a temporary two-month extension of the 2011 payroll tax cut for employees and a parallel extension of a lower tax rate on self-employment income. For wages received in January and February 2012, employees will pay Social Security tax at the rate of 4.2% while the employer rate remains at 6.2%. For self-employment income, the social security tax rate will remain at 10.4% (i.e. 4.2% and 6.2%) for earnings up to $18,350 ($110,100 Social Security wage base for 2012 x two-twelfths). The Act provides for a recapture of any benefit a taxpayer may have received from the reduction in the rates for the first two months of 2012. The recapture is accomplished by a tax equal to 2% of the amount of wages and compensation received during the first two months of 2012 that exceeds $18,350. Employers are instructed to implement the provisions of the payroll tax cut as soon as possible in 2012, but no later than January 31, 2012. If there is any over-withheld social security tax in January, employers should make an offsetting adjustment in workers’ pay as soon as possible but no later than March 31, 2012. A House-Senate Conference will convene soon to consider extending the payroll tax cut for the remainder of 2012. |
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