The IRS released IR-2010-124, providing additional guidance on social security and income tax withholding for calendar year 2011. Under the Tax Relief Act of 2010, the social security tax withholding rate in 2011 decreases from 6.2% to 4.2% for all employees. Unlike the Making Work Pay Credit of 2009 and 2010, there is no income phaseout for this tax benefit; nor is there any reporting or “true-up” required on the individual’s income tax return. The maximum social security tax savings for an employee is $2,136 (2% of $106,800, the maximum amount of wages subject to social security tax withholding).
The release also links to Notice 1036, which provides percentage method tables for 2011 income tax withholding. The 2011 version of Publication 15 (Circular E, Employer’s Tax Guide) has recently been posted to the IRS site.
Employers should start using the new withholding tables and applying the social security tax reduction as soon as possible in 2011, and no later than January 31, 2011.
Note: For self-employed taxpayers, the social security tax rate is reduced from 12.4% to 10.4% for 2011. Thus the self-employment tax total for 2011 is 13.3% rather than 15.3%.