January 19, 2012

Federal Tax Updates

A law enacted in December, 2010 (Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Public Law 111-312) provided for a reduction in the Social Security Tax Rate, and a temporary increase in mass transit benefits as part of qualified transportation benefits.  Following are updates on these two issues:

Temporary Extension of Reduced Social Security Tax Rates

For the 2011 tax year, the Social Security tax rate of 6.2% on taxable income dropped to 4.2%.   The rate reduction only applied to the 2011 tax year and only applied to the employee portion of Social Security; the employer rate of 6.2% remained unchanged.  On December 23, 2011, President Obama signed the Temporary Payroll Tax Cut Continuation Act of 2011 (“TTCA”, Public Law 112-78) that provides for a temporary 2-month extension of the reduced Social Security tax rate.  The IRS indicates that employers should begin using new payroll tax rate as soon as possible, but no later than January 31, 2012.  The agency will also issue additional implementation guidance, as well as revised employment tax forms and instructions for employers.  It is unclear whether Congress will extend the reduced tax rate beyond February 29, 2012, when the extension expires. 

Qualified Transportation Limits Reduced

As mentioned in the November, 2011 Benefit Beat relating to 2012 cost of living adjustments, the American Recovery and Reinvestment Act of 2009 temporarily increased the qualified transportation benefit (van pooling and transit passes) to match the qualified parking benefit for the 2/17/09 through 12/31/10 period.   The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 further extended the increase for the 1/1/11 through 12/31/11 period.  Since there has been no further Congressional action to extend the higher transportation limits, effective January 1, 2012, the van pooling and transit pass limit reverted to $125, unless a cost of living adjustment is subsequently issued.


The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

Accelerated Recovery Resources

Access articles and tools to help your business generate cash, improve leverage, and align & transform as you recover from the pandemic.

COVID-19 Resources

Access all COVID-19 related articles to help your business respond to the pandemic.

Insights in Your Inbox