Approximately 160 million workers can jump for joy that the 2 percent reduction of social security tax will be extended and apply to wages paid through February 29, 2012.
The tax benefits are not just for employees, but also independent contractors and other self-employed persons who pay self-employment taxes (SECA tax) on their earnings. The SECA tax is reduced to 13.3% from 15.3% on income up to the social security wage base of $110,100. Note that there may be a recapture of any benefits a taxpayer receives on wages in excess of $18,350 for January and February if the payroll tax cut is not extended beyond February.
Many are anticipating the employee payroll tax holiday to be extended through the end of 2012 since neither political party wants to be responsible for “increasing” taxes on working Americans in an election year.
The employee payroll tax holiday extension should not be a bookkeeping and payroll processing burden for employers. The IRS has instructed employers to implement the new payroll tax rate as soon as possible in 2012.