The 2 percent payroll tax cut has been extended through 2012 under the Middle Class Tax Relief and Job Creation Act of 2012 (the “Act”). The IRS has now released a revised Form 941.
The Social Security tax rate for employee withholding will stay at 4.2 percent, two percentage points less than the 6.2 percent rate in effect prior to 2011.
No action is required by workers to continue receiving the payroll tax cut, and the lower rate will still have no effect on workers’ future Social Security benefits.
Self-employed individuals will also benefit from a rate reduction in the Social Security part of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the Social Security tax applies to the first $110,100.00 of wages and net self-employment income received by an individual.
The Act also repeals the 2 percent recapture tax included in the December 2011 legislation that capped the amount of wages eligible for the payroll tax cut at $18,350.00. Thus, the now-repealed recapture tax does not apply.
The IRS will issue additional guidance as needed to implement the newly-extended payroll tax cut.
© 2012 Parsonage Vandenack Williams LLC
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