The President has signed into law the Temporary Payroll Tax Cut Continuation Act of 2011. The Act continues the 2% payroll tax reduction through February 2012.

Because the Act continues the reduction for one-sixth of the year, the reduction is good for one-sixth of the 2012 FICA wage base (i.e., one-sixth of $110,100 = $18,350). Employers will withhold at the 4.2% rate through February on all wages paid to an employee, even if they are in excess of $18,350. The employee will “recapture” the excess tax break on his or herpersonal tax return (assuming that the 2% reduction is not extended past the first two months of 2012).

For more information on how to compute the reduction for self-employds and owners of closely held corporations, attend Spidell's 2011/12 Fall Federal and California Tax Update Seminar. Click here to register now — some locations are filling up fast.