On December 23rd 2011, the United States Congress passed and President Barack Obama signed into law a two month continuation (into January and February 2012) of the 2% 2011 Social Security Payroll Tax reduction for employees.
The dynamics that the tax cut is limited to two months inherently creates a potential tax strategy for sharp taxpayers, tax lawyers, tax attorneys, tax accountants and tax advisors. Had Congress not had the foresight to anticipate and close the opportunity for this tax strategy (tax loophole) taxpayers and tax professionals could have bunched their income into the first two months of 2012 to take advantage of the 2% reduction most or all of the year regardless of whether the Social Security Payroll Tax reduction is continued for the remainder of 2012. To forestall this strategy, Congress included a “recapture” provision which essentially limits the 2% reduction to two twelfths of the $110,100 2012 Social Security Wage Base. A parallel provision accomplishing the same result for self employment taxes is also included. For employers who use payroll service or payroll software the additional computations should be hardly noticeable. For employers who manually prepare their payroll this makes payroll preparation even more exciting.
For more information on payroll tax or other tax related legal concerns, contact the Chicago tax lawyers at Horowitz & Weinstein.
