A payroll tax cut that has been in effect since 2011 will extend through the end of February. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages. According to the Internal Revenue Service, the reduction will have no effect on employees’ future Social Security benefits.
Employers are advised to implement the new payroll tax cut as soon as possible, but no later than Jan. 31. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay no later than March 31.