Payroll Tax Cut Extended

The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the 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 February 29, 2012.

The Act also includes a new “recapture” provision, which applies to those employees who receive more than $18,350 in wages during the two-month period (the social security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year.

Congress obviously wants accountants and payroll preparers to earn their keep by allowing the tax cut to expire mid quarter, creating confusing and double the tax calculations.

Gary E. Skop, EA, ATA, ATP

Enrolled Agent

Licensed to Practice Before the

Internal Revenue Service

Office – 734-464-3660

Fax – 734-464-9655

Cell – 313-613-3408