2012 Federal Payroll Tax Reduction

The new law continues the 4.2% FICA rate for employees, but only through February.  What you might need to know is that this only applies to $18,350 in wages paid through the end of February (So, you can't bunch up salary in the first two months to take advantage of the temporary rate reduction.)

This is most likely only a temporary technicality, because the rate reduction will most likely get extended to the entire year once Congress gets back together in 2012.

The details:

Under the new law, the reduced employee OASDI tax rate of 4.2% under the FICA tax, and the equivalent employee portion of the RRTA tax, is extended to apply to covered wages paid in the first two months of 2012.

The TTCA also provides for a recapture of any benefit a taxpayer may have received from the reduction in the OASDI tax rate, and the equivalent employee portion of the RRTA tax, for remuneration received during the first two months of 2012 in excess of $18,350 (i.e., two-twelfths of the 2012 wage base of $110,100).  The recapture is accomplished by a tax equal to 2% of the amount of wages (and railroad compensation) received during the first two months of 2012 that exceed $18,350.

For tax years beginning in 2012, the TTCA provides that the OASDI rate for a self-employed individual remains at 10.4%, for self-employment income of up to $18,350 (reduced by wages subject to the lower OASDI rate for 2012).