Happy New Year, HR Forum readers! I hope you weathered every HR storm in 2010 with wisdom and finesse - and that 2011 brings you and your business continued growth and success. Check back here often for insight and guidance with the biggest challenges the new year throws our way. It's bound to be an interesting 12 months, with many twists and turns in the worlds of labor law, people management and HR. Together, we can tackle the toughest issues and map out the smartest solutions.
Now for the first topic this year ... taxes!
Thanks to the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, millions of employees will see a bump in their take-home pay this year. That’s because the recently passed Act provides a tax cut that reduces the Social Security (FICA) tax withholding rate from 6.2% to 4.2% of wages paid. For an employee earning up to the $106,800 taxable earnings cap, this 2% reduction amounts to a tax savings of $2,136.
While this is good news for employees, the change is putting employers in a bit of a bind to quickly implement the changes. The IRS is instructing employers to process the new withholding “as soon as possible in 2011 but not later than Jan 31, 2011.” If you accidentally process the payroll tax withholding at the higher 6.2% rate, you must reimburse employees the difference by March 31, 2011.
In addition to the reduced Social Security withholding, the IRS released new income-tax withholding tables for 2011. (The new law maintains the income-tax rates from recent years.)
Because employers and payroll companies must handle the withholding changes, employees won’t be required to take any additional action, such as filling out a new Form W-4
Please note: As soon as it is released by the federal government (usually in January of the new year), we will update the Form W-4 required by every employee to claim (or makes changes to) their tax withholdings.