Deadline To Implement New Payroll Changes Is Close

Under the 2010 Tax Relief Act employees will pay only 4.2% Social Security tax on wages up to $106,800 (which is the limit on taxable wages for Social Security tax purposes).  The employer tax rate for Social Security remains unchanged at 6.2%.

Self-employed individuals will also benefit from this legislation.  Self-employment income will only be subject to a 10.4% Social Security tax which is down two percent from 12.4% in prior years.  The medicare tax still remains at 2.9% in 2011 for self-employed individuals.

Employers should be aware of the pending Jan. 31, 2011 deadline for implementing the new 2011 withholding tables and 4.2% employee Social Security tax rate brought about by this recent tax legislation.  Employers should also note after implementing the new 4.2% rate, they should make an offsetting adjustment in a subsequent pay period to correct any Social Security tax over-withholding by Mar. 31, 2011.

If you have any questions regarding this topic feel free to call us today and let us help you.

-EAE

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CIRCULAR 230 DISCLAIMER: ADVICE, ARTICLES AND COMMENTARY INCLUDED HEREIN DO NOT CONSTITUTE AN OPINION AND ARE NOT INTENDED OR WRITTEN TO BE USED, AND THEY CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER.