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IRS Has Guidance for Implementing the 2011 Payroll Tax Cut

Cuts in payroll taxes are in effect for 2011, and the Internal Revenue Service has instructions that will help employers implement them. The IRS also has released new income-tax withholding tables for use by employers this year

When Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, it gave millions of workers an increase in take-home pay. The payroll tax cut gives a 2% payroll tax cut for employees, reducing withholding for Social Security from 6.2% to 4.2% of wages.

Reduced Social Security withholding will not affect anyone's eventual benefit amount under Social Security.

In addition to the payroll tax reduction, Congress also re-passed the income tax rates that have been in effect for several years.

The new withholding tables and Social Security tax withholding can begin any time in 2011, but must be implemented no later than January 31st. Because of the late passage of the changes/retention of withholding rates and tax rates, the IRS is allowing employers the month of January to catch up with and implement the current rates.

If withholding for January turns out to be incorrect once the changes are implemented by an employer, the employer should make an offsetting adjustment no later than March 31st.

IRS Notice 1036 contains the percentage method income tax withholding tables, the lower Social Security withholding rate, and other information that will help employers implement the changes.

Employees will not be required to submit new W-4s in order to have the changes to payroll tax withholding implemented. However, the IRS does recommend that employees review their withholding and make adjustments as their circumstances change.

Source: irs.gov "Payroll Tax Cut to Boost Take-Home Pay for Most Workers; New Withholding Details Now Available on IRS.gov" 12/17/2010

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