During November and December of 2010, American citizens waited patiently as politicians debated the decision to extend the Bush era tax cuts that went into effect starting in 2001. In a bi-partisan eleventh-hour decision, the tax cuts were extended. President Obama signed the tax cut legislation into law, and as a result the FICA Social Security Tax, which currently stands at 6.2% (up to $106,800 of an employee’s wages) will decrease to 4.2% as a temporary tax cut for all employees during the 2011 year. Given the fact that this particular “stimulus” measure includes a change that affects all employees, employers should notify employees of this temporary tax change for the New Year.
As with end of the year bonuses, even when employees expect them, they may not realize that it’s either a temporary one-time deal, or discretionary on a year-to-year basis. In the case of the FICA Social Security tax, the reduction is only meant to be a temporary decrease for the 2011 year, and therefore shouldn’t be counted on beyond this twelve month period.
Since many employees don’t pay much attention to their check stubs or bother reviewing how many tax deductions were withheld, it would be very wise to communicate this new information to employees given the fact they may be shocked to see a “raise” on their next paycheck, and all subsequent paychecks during the 2011 year. Suggested methods of communication include email blasts, company newsletters, company blogs, or paycheck stuffers.
