IRS Issues Guidance on Payroll Tax Cut Extension | Practical Law

IRS Issues Guidance on Payroll Tax Cut Extension | Practical Law

The IRS issued Announcement IR-2011-124, providing guidance on implementing the extension of the 2% payroll tax reduction under the Temporary Payroll Tax Cut Continuation Act of 2011 and on the Act's recapture provision.

IRS Issues Guidance on Payroll Tax Cut Extension

Practical Law Legal Update 7-517-0625 (Approx. 2 pages)

IRS Issues Guidance on Payroll Tax Cut Extension

by PLC Employee Benefits & Executive Compensation
Published on 28 Dec 2011 • USA (National/Federal)
The IRS issued Announcement IR-2011-124, providing guidance on implementing the extension of the 2% payroll tax reduction under the Temporary Payroll Tax Cut Continuation Act of 2011 and on the Act's recapture provision.
On December 23, 2011, the IRS issued Announcement IR-2011-124, providing guidance on the recently signed Temporary Payroll Tax Cut Continuation Act of 2011. The IRS advises employers to implement the new payroll tax rate as soon as possible in 2012, but no later than January 31, 2012. If any Social Security tax is over-withheld during January, the IRS advises employers to make an off-setting adjustment in workers' pay as soon as possible, but no later than March 31, 2012. For more information on the payroll tax cut extension, see Legal Update, Reduction in Payroll Tax Rates Extended Through February 2012.
In addition, the IRS guidance addresses the additional 2% recapture tax for individuals who earn more than $18,350 in the first two months of 2012. The recapture tax is added to the employee's income tax liability and cannot be reduced by credits or deductions. This tax is payable in 2013 when the employee files an income tax return for the 2012 tax year.