Social Security Tax Cut 2011: Is Your Organization Ready?
The IRS recently announced a new Social Security tax cut for 2011. This will mean a welcomed net increase in pay for employees. This tax cut is a result of the 2010 Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act. This new cut in Social Security taxes will mean a 2 percent cut in payroll taxes for employees. This tax cut reduces the percentage the employee contributes to Social Security Tax 2 percent, or from 6.2 to 4.2 percent.
Employers should be aware of this tax change so they can make administrative adjustments to payroll systems.
Tips for Employers:
- The 2011 employer tax rate for Medicare and Social Security will remain 6.2 percent with a wage limit of $106,800.
- The 2011 employee tax rate for Medicare and Social Security will be 4.2 percent.
- The 2011 tax rate for Medicare will be 1.45 percent for employers, as well as employees, with no wage limit.
- Employers are asked to update their payroll systems to reflect these changes as soon as possible, but no later than January 31, 2011.
- Employees should be reimbursed any tax overage made during the transition no later than March 31, 2011.
- Employers should encourage employees to review their tax withholdings to make any necessary adjustments.
- More information about these tax cuts can be found at IRS Notice 1036.
This should be welcomed news for all employees, but especially those who have not seen a pay increase in a few years. More information can be found at IRS.gov.