The Internal Revenue Service released a revised Form 941 on Thursday to allow employers to properly report the newly extended payroll tax cut, which has now been extended through the end of the year.

President Obama signed the Middle Class Tax Relief and Job Creation Act of 2012 into law on Wednesday (see Obama Signs Payroll Tax Cut and Unemployment Benefits Legislation). Under the law, workers will continue to receive larger paychecks for the rest of this year based on a lower Social Security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, which was enacted Dec. 23.

The law also extends emergency unemployment benefits through the rest of the year, along with the so-called "doc fix" to prevent the Medicare physician reimbursement rate from plummeting.

The IRS noted that no action is required by workers to continue receiving the payroll tax cut, and the lower rate will have no effect on workers’ future Social Security benefits. The reduction in revenues to the Social Security trust fund will be made up by transfers from general revenues.

Self-employed individuals will also benefit from a comparable rate reduction in the Social Security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the Social Security tax applies to the first $110,100 of wages and net self-employment income received by an individual.

The new law also repeals the 2 percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now-repealed recapture tax does not apply.

The IRS said it would issue additional guidance, as needed, to implement the newly-extended payroll tax cut, and any further updates will be posted on IRS.gov.

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