As part of the new tax cuts for 2011, the Social Security (OASDI) payroll tax withholding for employees has been cut by a full 2 percentage points from 6.2 percent to 4.2 percent of wages paid.
This late action has created problems for both the IRS and employers in implementing this last minute change. The IRS recently issued guidance to employers:
Employers should start using the new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but no later than Jan. 31, 2011. Notice 1036 contains the percentage method income tax withholding tables, the lower Social Security withholding rate, and related information that most employers need to implement these changes.
The IRS recognizes that the late enactment of these changes make 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 no 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 no later than March 31, 2011.
If you use a payroll service or software, make sure they are updated for these changes. If you have questions, please give this office a call.