As a follow up to our Tax Flash from earlier this week, the Internal Revenue Service released revised Form 941 enabling employers to properly report the newly-extended payroll tax cut.
The Middle Class Tax Relief and Job Creation Act of 2012, signed by the President this week, extends the two percentage point lower social security tax withholding rate of 4.2 percent, which was in effect during 2011. (This reduced rate, originally in effect for all of 2011, was extended through the end of February 2012 by the Temporary Payroll Tax Cut Continuation Act of 2011.)
Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the social security tax applies to the first $110,100 of wages and net self-employment income.
As previously noted, the lower rate will have no effect on future Social Security benefits. The reduction in revenues to the Social Security Trust Fund will be made up by transfers from the General Fund.
The IRS will issue additional guidance, as needed, to implement the newly-extended payroll tax cut, and any further updates will be posted on IRS.gov.