Have you heard the news? Congress has reduced Payroll taxes for the 2011 year, and the Internal Revenue Service has just released information to help employers implement the new cuts, along with the new income-tax withholding tables that employers will be using.
As a result of the Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010, millions of working Americans will see their take-home pay rise during the 2011 year. The Act provides for a two percentage point reduction in payroll, thereby reducing an employee’s Social Security Tax withholding from 6.2 percent to 4.2 percent of wages paid. For example, an employee who makes $50,000 a year will see an additional take-home amount of $1,000 over the year. Likewise someone who makes $100,000 will see an additional $2,000. It is important to know that this reduction in Social Security withholding will have absolutely no effect on the employee’s future Social Security benefits.
Employers are being urged to start using the new tables and reducing employee’s Social Security Tax as soon as possible in 2011 but no later than January 31st. The IRS is aware that due to the Act being implemented so late in the year, it may be difficult for employers to adjust so quickly. Therefore employers are being given till January 31st to adjust to the new tables. However, any Social Security Tax that was over held in January must be offset as soon as possible but no later than March 31st 2011.
Workers need not worry about filling out a new W-4, as employers and payroll companies will handle all the withholding changes. However, it is always a good idea for workers to review their withholding every year and fill out a new W-4 if necessary.