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Payroll CPA discusses the Temporary Payroll Tax Cut Extension Form 941 for 2012 | Wilmington NC

payroll tax CPA wilmington nc

Gary Bode, CPA: tax regulations like this help keep CPAs in business. Sad but true. For a free phone consult, call 399-2705.

Most of the earlier payroll CPA postings on this website mention the stability of payroll taxes and related issues. But 2010, 2011 and now 2012 are in flux. I’ll discuss the Social Security tax cut extension below. Federal unemployment taxes may change, too, as many states dipped into the federal well to pay unemployment benefits.

“What’s a definitive guide for the Social Security tax cut extension? Probably the 1st Quarter Form 941 for 2012.”
– Gary Bode, Wilmington NC payroll tax CPA and Form 941 preparer

Likelihood of the Temporary Payroll Tax Extension Extended Further

As a payroll CPA, it would be easier to prepare the 1st Quarter Form 941 if the extension, set to end February 29th, 2012, was extended to cover the entire 1st Quarter. I’m sure the IRS would see far fewer Form 941 errors that way. Lately Congress acts so late that the IRS must scramble to prepare new forms.

The Same Two Percent

The Social Security tax, withheld from the employee’s paycheck, is still 4.2%, down from the 6.2% rate that was in effect for decades. Supposedly, the tax break doesn’t affect the employee’s eventual Social Security payments.

Timing Regulations

  • Employers should try to comply in January.
  • If January is too much of an administration burden, the latest they can start is January 29th, 2012.
  • If the employer withholds too much, a compensating offset payment to the employee must be made by March 31st.

Social Security Tax Recapture in the form of Income Tax?

Social Security tax has always had a gross wages cap, above which no tax is due on the excess for the tax year. For 2012 the cap is $110,100. Two months of that is $18,350. Here’s the breach of logic. Taxpayers earning more than $18,350 during January and February 2012 incur a 2% income tax on the amount exceeding $18,350, on their 2013 Form 1040.

We’re a CPA payroll firm in Wilmington NC that prepares Form 941. If you have problems with the 1st Quarter 2012 Form 941, give us a call for a free phone consult at (910) 399-2705.

Here’s the IRS blurb, cut and pasted below.


Payroll Tax Cut Temporarily Extended into 2012

WASHINGTON— 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.

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