The payroll tax that funds the Social Security program will go up on January 1, 2012. That is unless it goes down. Or possibly stays the same. Unfortunately for payroll managers, that’s about as clear as the payroll tax situation has gotten with 2011 winding to a close and automatic rate increases ready to kick in when the new year begins.
The Obama administration proposed reductions in the Social Security tax rate for both employers and employees back in September. The latest Republican counterproposal to the administration plan was just laid out on December 9. If a compromise can’t be reached soon, the Social Security tax rate on employee payroll will automatically jump from 4.2 percent back up to the usual 6.2 percent when a temporary rate cut expires on December 31. The 2 percentage point reduction for 2011 was intended as a stimulus measure to put more money into workers’ pockets. For a person earning $50,000 in 2011, the cut equated to $1,000 more in take-home pay during the year.
The administration’s proposed American Jobs Act provided for the rate to be cut even further, down to 3.1 percent, for employers and employees. The employer rate is currently 6.2%, so the AJA provisions would have cut the employer contribution in half for 2012. Under the Obama plan, employers would also get a tax credit to essentially offset increased Social Security taxes paid as a result of wage increases. The Republican bill just introduced would only lock in the current temporarily reduced rate of 4.2 percent for employees for another year. Social Security advocates, meanwhile, are concerned about even that reduction becoming permanent and leading to eventual insolvency in the benefits program.
With the political and economic debate over the Social Security tax rate still ongoing and any change to the law likely to come down to a last-minute vote in Congress, payroll processors will need to stay on top of the situation to make sure that they’re aware of the correct tax rates to use come January. The continual flux in tax levies is one reason that it may be wise to have an experienced payroll specialist handle your company’s payroll. Through payroll outsourcing, you can not only free up valuable time that can be invested in making your business improve and grow, but you can also avoid mistakes that can be costly in both time and money.
Padgett Payroll Services can handle your company’s payroll administration duties, including accurate calculation and timely remittance of all payroll and withholding taxes at the federal, state and local levels. Call Padgett today at (706) 548-1040 to find out more about how we can help simplify the job of running your small business.