Up to 160 million workers are benefiting from the extension of the reduced payroll tax rate that was in effect for 2011 and can now be sure the reduction will last for all of 2012.
The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the 2% payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012.
President Obama recently appeared at the Eisenhower Executive Office Building at the University of Miami to address a group of supporters and to demand that Congress continue to support his initiatives after lawmakers approved an extension of a payroll tax cut and long-term unemployment insurance last week.
“Congress did the right thing here,” Obama said. “Now my message to Congress is: Don’t stop here. Keep going. Keep taking the action that people are calling for to keep this economy growing.”
Under the measure, 160 million workers will continue to receive about $40 extra per paycheck, according to the administration, and Obama aides said the money will help provide a buffer for Americans facing higher gas prices.
This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.
Employers are currently implementing the new payroll tax rate as quickly as they can. For any Social Security tax over-withheld during January, employers are advised by the IRS to make offsetting adjustments in workers’ pay as soon as possible but not later than March 31, 2012.
Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.