If you haven’t heard the news yet, employers will withhold less Social Security from their employee payroll taxes starting Jan. 1, 2011. The 2% payroll tax cut is designed to give employees more take-home pay for 2011. The Social Security “holiday” is one part of the recently passed Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.
Employers will calculate employee payroll taxes using the new Social Security rate of 4.2%, down from the current rate of 6.2%. The employer’s share of payroll taxes remains the same; they will contribute to the employees’ Social Security at a rate of 6.2% for 2011.
According to the Internal Revenue Service, employers should withhold at the new rate as soon as possible in 2011 and no later than Jan. 31. If you’re using payroll software or a payroll service, the rate change should be automatic — check with your payroll provider to be sure. Also, notify your employees of the rate adjustment and how it will affect their pay (they may be pleasantly surprised at the new amount of their paycheck.)
If you’re an employer still figuring payroll by hand, and you forget and continue to use the old rate, the IRS advises you to make an offsetting adjustment to your employees’ Social Security withholding no later than March 31, 2011 (the end of the first quarter.) For more details about this change in payroll tax withholding and the recently passed Act, read IRS notice 1036.