Important Payroll Notice for Payroll Checks Beginning 1/1/11

Jan 03, 2011

As part of the tax legislation passed in December of 2010, the Social Security tax withheld from employee paychecks decreases from 6.2% to 4.2%. The decrease also applies to self-employed taxpayers. The tax rate to employers does not change. If you are an employee, make sure the correct amount is withheld from your paycheck and stop reading! You just got a 2% raise!

For employers only:
Please make sure your payroll software is updated prior to preparing checks dated 1/1/11 or later. If you prepare your payroll manually change the employee deduction for Social Security to 4.2% instead of 6.2%.
When calculating your payroll tax deposit you will need to change your computation of the tax due.

Method 1. All Addition!
Social Security tax withheld from employee checks 4.2%
Social Security matching amount at 6.2%
Medicare tax withheld at 1.45%
Medicare matching amount at 1.45%
Federal Income Tax withheld.
Equals tax payment due.

Method 2. Multiplication and Addition…
Total Gross wages subject to Social Security and Medicare Taxes
Multiplied by 13.3% (normally 15.3% less 2% reduction)
Equals: Social Security and Medicare Taxes due
Federal Income Tax Withheld
Equals tax payment due.

If done correctly, the two amounts should be within a few cents of each other. If you are calculating the payroll and tax payment in QuickBooks, you should get the amount calculated under Method 1. Make sure to check it with the amount in Method 2 to ensure it’s deducting taxes correctly.

If these amounts don’t agree, don’t issue the paychecks or make the tax payments until you find out why. You’ll end up re-doing checks, refunding taxes to employees, or overpaying the IRS.

Hopefully the IRS will be mailing official information soon for the changes that go into effect on Saturday, January 1, 2011.

Category: Taxes

Fatal error: Call to a member function getUserUserBio() on null in /home/wyoming/public_html/packages/problog/helpers/blogify.php on line 370