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Friday, December 17, 2010

Payroll Tax Cut to Boost Take-Home Pay for Most Workers

WASHINGTON--The Internal Revenue Service today released instructions to help employers implement the 2011 cut in payroll taxes, along with new income-tax withholding tables that employers will use during 2011.

Workers will see their take-home pay increase during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a payroll tax cut for employees.  The act reduces the Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. The new law also maintains the income-tax rates that have been in effect in recent years.

Employers should start using the new withholding tables and reduce the amount of Social Security tax withheld as soon as possible in 2011 but no later than Jan. 31, 2011.  Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov in a few days.

The IRS recognizes that the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems. For that reason, the agency asks employers to adjust their payroll systems as soon as possible, but not later than Jan. 31, 2011.

For any Social Security tax over withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2011.

Employers will handle the withholding changes, so workers typically won’t need to take any additional action, such as filling out a new W-4 withholding form. If you are an employer and need assistance please contact our office, we would be glad to assist you.