Reduced payroll tax will be implemented for early 2012
On Dec. 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011. Included in the Act is a provision that temporarily reduces the Social Security withholding rate from 6.2 percent to 4.2 percent for the first two months of 2012. This change is effective with paychecks (and direct deposit) issued on or after Jan. 1, 2012.
The IRS has given employers until Jan. 31, 2012 to implement this withholding change.
Because the law was enacted so late in December, monthly paid employees were subject to the old 6.2 percent rate for the Jan. 3, 2012 paycheck. As a result, they will receive a 2 percent refund in their Feb. 1 paycheck along with the implementation of the new 4.2 percent rate, making the net Social Security withholding 2.2 percent for the Feb. 1 pay date.
Although this temporary payroll tax cut is currently scheduled to expire Feb. 29, 2012, a House-Senate Conference committee is scheduled to convene soon to consider extending the payroll tax cut for the remainder of 2012. We will await further instructions from the IRS once a decision has been reached.
If you have any questions about this change, please contact John Barrett at John.Barrett@ucop.edu.