The Internal Revenue Service released revised Form 941 on Feb. 23 enabling employers to properly report the newly-extended payroll tax cut.
Under the Middle Class Tax Relief and Job Creation Act of 2012, enacted Feb. 22, workers will continue to receive larger paychecks for the rest of this year based on a lower Social Security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, enacted Dec. 23.
Self-employed individuals will continue to receive 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 received by an individual.
The new law also repeals the 2 percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.