Nonprofit workers to benefit from payroll tax extension
Employers must implement new rate before Jan. 31
While currently just a temporary measure, nearly 160 million workers – including employees of nonprofit organizations – will benefit from the recent extension of the reduced payroll tax rate.
The extension continues the reduction of the Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29.
The Internal Revenue Service requests that all employers implement the rate as soon as possible before Jan. 31. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay before March 31. Workers should not need to take any action.
Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies to employees who receive more than $18,350 in wages during the two-month period. This imposes an additional income tax 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).
The IRS will issue guidance as needed to implement the provisions of this extension, including revised employment tax forms and instructions and information for employees subject to the “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012, is due April 30.