A portion of the "bush tax cut" extension bill, recently signed, will have a significant effect on payroll checks in 2011. Normally employees have social security taxes of 6.2% on the first $106,800 of W-2 wages. Now, employees will have a withholding rate of only 4.2% on the first 106,800 of wages for 2011 only.
Employers should prepare for this change, and adjust their withholding accordingly.
Also, note that many large payroll providers have given notice to the IRS that they will need some time to change their software. For this reason, some employees will not receive the updated withholding amount on their first check, but the amount will be adjusted in a subsequent check when the issue has been resolved.
If you have a large payroll provider, we suggest you contact your representative to verify how they plan on handling this change.
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