Social Security Withholding to Be Reduced To 4.2%
The biggest impact many employees will see is the reduction of Social Security withholding from 6.2% to 4.2%. According to the Internal Revenue Service (IRS) in Notice 1036, “Employers should implement the 4.2% employee social security tax rate as soon as possible, but not later than January 31, 2011. After implementing the new 4.2% rate, employers should make an offsetting adjustment in a subsequent pay period to correct any overwithholding of social security tax as soon as possible, but not later than March 31, 2011.” The new law also maintains the income-tax rates that have been in effect in recent years.
Making Work Pay Credit Set to Expire
The Making Work Pay credit expires on December 31, 2010. As a result:
- The income tax withholding tables for 2011 are not adjusted for the Making Work Pay credit.
- There is no longer an optional additional withholding adjustment for pensions.
- The procedure for withholding on wages of nonresident aliens has been modified and is included in Notice 1036.
New Percentage Method Tables for Income Tax Withholding Now Available
Notice 1036 includes the 2011 Percentage Method Tables for Income Tax Withholding that were developed as a result of the 2010 Tax Act. Employers should implement the 2011 withholding tables as soon as possible, but not later than January 31, 2011. Vision Payroll has already updated its tax tables and will calculate both the reduced Social Security and updated federal income tax withholding for all 2011 paychecks.