IRS Issues Withholding Details for Payroll Tax Cut
Posted 1-4-2011 | Download Article
The IRS issued notice 1036 carrying early release copies of the 2011 percentage method tables for income tax withholding and explains the new payroll tax holiday for the reduced social security tax rate for employees.
For 2011 only, the 2010 Tax Relief Act reduces the employee portion of the Social Security tax on earned income from 6.2% to 4.2%. Employers should work closely with their payroll company to ensure proper adjustments are made to employee paychecks in the new year. The employer portion of Social Security tax remains the same. The self-employed pay both the employee and employer portions of Social Security tax; however the Act reduces their rate by two percentage points for 2011, from 12.4% to 10.4%.
Employers should implement the 4.2% employee social security tax rate and new withholding tables as soon as possible, but not later than January 31, 2011. After implementing the new 4.2% rate, employers should make an offsetting adjustment in a subsequent pay period to correct any over-withholding of social security tax as soon as possible, but not later than March 31, 2011.
Also note, the Tax Relief Act doesn’t extend the payroll tax forgiveness provided under the Hiring Incentives to Restore Employment (HIRE) Act of 2010. However, if you hired workers in 2010 that qualified for payroll tax forgiveness, you may be eligible for a retention credit of up to $1,000 per retained worker on your 2011 tax return.
If you have any questions, please contact Paul Dillon, CPA, at pdillon@hlbtr.com or 651-407-5870.