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Temporary Payroll Tax Cut Continuation Act of 2011

On December 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011 (HR 3765).  The highly publicized and debated Act provides for a temporary, two month, continuance of a two percent reduction in employees' payroll tax in 2012.  The reduced payroll tax rate of 4.2% was scheduled to expire December 31, 2011 and revert back to 6.2%.  This Act will now keep the reduced rate of 4.2% in effect until February 29, 2012.

The Act further includes a joint Senate and House conference to explore a full year reduction in the tax rate.  If however the payroll tax rate is not extended for the entire year then the current Tax Act includes a recapture provision for certain employee’s wages.  The intention of the recapture provision is to prohibit the frontloading of an employee’s wages into the first two months.  Therefore, if an employee’s wages during the first two months of 2012 exceed $18,350 (two-twelfths of the wage base of $110,100), an amount equal to 2 percent of those excess wages would ultimately be recaptured on the worker’s individual tax return for 2012.  However, this rule would only apply if the payroll tax reduction is not extended for the remainder of 2012.

We will keep you informed regarding any additional extension of this reduced payroll tax rate.

Please consult your Alpern Rosenthal representative if you have any question or require any additional information regarding this Tax Act.  

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