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    Temporary Employee/Self-Employed Payroll Tax Cut for 2011

    In 2010 employees were required to pay a 6.2% Social Security tax on all wages earned up to a wage base limit of $106,800. For 2011, the Senate passed a 2010 Tax Reform Act which gives a two-percentage point payroll tax holiday for all employees and self-employed individuals. As a result, employees will only pay a 4.2% Social Security tax in 2011 on wages up to a wage base limit of $106,800. The employer tax rate for social security remains unchanged at 6.2%. In 2011, the Medicare tax rate is 1.45% each for employers and employees, unchanged from 2010. There is no wage base limit for Medicare tax. What this means is that beginning January 1, 2011 you will withhold Social Security tax from employee paychecks at a rate of 4.2% instead of 6.2%. You will continue to withhold Medicare tax at 1.45% as done in 2010. The employer match for Social Security tax will remain at 6.2% and Medicare tax at 1.45%. Employers should implement the 4.2% employee social security tax rate as soon as possible, but not later than January 31, 2011. After implementing the new 4.2% rate, employers should make an offsetting adjustment in a subsequent pay period to correct any over withholding of social security tax as soon as possible, but not later than March 31, 2011. The above information is also available in Publication 15, IRS Employer's Tax Guide (Circular E).


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