Congress recently passed and the President signed the Temporary Payroll Tax Cut Continuation Act of 2011.This act temporarily extends the two percentage point payroll tax cut for employees by continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through February 29, 2012. The IRS states” that nearly 160 million workers will benefit from the extension of this reduced tax and that this will have no effect on employees’ future Social Security benefits.” Employers should implement the new payroll tax rate as soon as possible in 2012 but no later than Jan. 31, 2012.An employer that inadvertently over-withholds in January should correct for this, again as quickly as possible, but not later than the end of March. The law also includes a “recapture” provision, which applies to employees who earn more than $18,350 during the two-month period of January and February 2012. The provision imposes an additional income tax on these employees in an amount equal to 2% of the amount of wages they receive during the two-month period in excess of $18,350, and not greater than $110,100. The IRS notes that the Social Security wage base for 2012 is $110,100; $18,350 represents two months of this amount. This recapture is an additional income tax liability for these employees for 2012, and can’t be reduced by credits or deductions, the IRS says. It will be payable in 2013, when the employees file their 2012 tax returns. The recapture appears to be a way to address concerns about effectively administering the tax cut extension, while also ensuring that highly compensated employees didn’t benefit from a two-month extension more than lower-paid employees. Of course, all this legislation over the “recapture” provision could be unnecessary if the extension is extended again through the end of 2012.