On December 23rd, President Obama signed The Temporary Payroll Tax Cut Continuation Act (the “Act”) of 2011 into law. The Act extends the current reduction of the Social Security withholding rate from 6.2% to 4.2% through February 29th, 2012.

High wage earners (those who receive more than $18,350 in wages during the two-month period) will be subject to an additional 2% recapture income tax. The recapture income tax will be levied on wages received during the two-month extension period in excess  of $18,350 (and not greater than $110,100). The recapture tax cannot be offset by credits or deductions.

Employers should implement the new payroll tax rate as soon as possible in 2012.