Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011, according to a news release from the Internal Revenue Service.
The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the 2 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 will have no effect on employees’ future Social Security benefits.
The IRS says employers should implement the new payroll tax rate as soon as possible but no later than Jan. 31. 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.
Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.