The Internal Revenue Service, acting quickly after the passage of the Tax Relief Act of 2010, has notified employers and payroll service firms of the income tax withholding and Social Security withholding changes that were effected as a result of the recently enacted legislation.
Workers should see a decrease in their Social Security withholdings. The Tax Relief Act provides a temporary, one-year reduction in the employee-portion of Social Security taxes. For 2011 only, employees will pay 4.2% of their wages, up to the Social Security wage base of $106,800. This is a reduction of two percentage points from the statutory 6.2% rate.
The IRS directed employers to implement the lower Social Security withholding "as soon as possible in 2011 but not later than Jan. 31, 2011." If the employer does end up withholding at the higher 6.2% rate, the IRS directed employers to reimburse employees for the difference "not later than March 31, 2011."
The IRS expects to issue an updated version of Publication 15, the Employer's Tax Guide, "in a few days." The IRS also cautioned that employees most likely will not need to adjust their withholding allowances using Form W-4 solely in response to the Tax Relief Act.
From the IRS: