WASHINGTON (MNI) – The IRS Friday told high-income taxpayers they
will owe 2% more on wages in excess of $18,350 — an annual rate
of $80,100 –earned during the two months the payroll tax cut has been
extended:

Payroll Tax Cut Temporarily Extended into 2012
IR-2011-124, Dec. 23, 2011

Nearly 160 million workers will benefit from the extension of the
reduced payroll tax rate that has been in effect for 2011. The Temporary
Payroll Tax Cut Continuation Act of 2011 temporarily extends the two
percentage point payroll tax cut for employees, continuing the reduction
of their Social Security tax withholding rate from 6.2 percent to 4.2
percent of wages paid through Feb. 29, 2012. This reduced Social
Security withholding will have no effect on employees’ future Social
Security benefits.

Employers should implement the new payroll tax rate as soon as
possible in 2012 but not later than Jan. 31, 2012. For any Social
Security tax over-withheld during January, employers should make an
offsetting adjustment in workers’ pay as soon as possible but not later
than March 31, 2012.

Employers and payroll companies will handle the withholding
changes, so workers should not need to take any additional action.

Under the terms negotiated by Congress, the law also includes a new
“recapture” provision, which applies only to those employees who receive
more than $18,350 in wages during the two-month period (the Social
Security wage base for 2012 is $110,100, and $18,350 represents two
months of the full-year amount). This provision imposes an additional
income tax on these higher-income employees in an amount equal to 2
percent of the amount of wages they receive during the two-month period
in excess of $18,350 (and not greater than $110,100).

This additional recapture tax is an add-on to income tax liability
that the employee would otherwise pay for 2012 and is not subject to
reduction by credits or deductions. The recapture tax would be payable
in 2013 when the employee files his or her income tax return for the
2012 tax year. With the possibility of a full-year extension of the
payroll tax cut being discussed for 2012, the IRS will closely monitor
the situation in case future legislation changes the recapture
provision.

The IRS will issue additional guidance as needed to implement the
provisions of this new two-month extension, including revised employment
tax forms and instructions and information for employees who may be
subject to the new “recapture” provision. For most employers, the
quarterly employment tax return for the quarter ending March 31, 2012 is
due April 30, 2012.

** Market News International Washington Bureau: 202-371-2121 **

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