The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduces an employee's Social Security tax withholding rate in 2011 from 6.2% to 4.2% of wages paid, up to a maximum of $106,800. As a result, an employee's net pay will increase by the amount of this two-percentage-point reduction. The employer's share of the Social Security tax will remain at 6.2%.
On December 17th, the Internal Revenue Service released instructions to help employers implement the 2011 reduction in payroll taxes. Because of the late enactment of these changes, the Internal Revenue Service is asking employers to adjust their payroll withholding systems as soon as possible, but no later than January 31, 2011.
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, 2011.
It is interesting to note that, if an employee has too much Social Security tax withheld by any one employer, the excess cannot be claimed on Form 1040. The employee should request that the employer adjust the over-collection. If the employer refuses, the employee must file a request for refund from the Internal Revenue Service using Form 843.
If you have questions regarding the new tax cut or would just like further information, please contact Tom Lisak at firstname.lastname@example.org.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.