Details on Tax Withholding Guidelines Released by the IRS

The Internal Revenue Service  released instructions on Friday December 19th to help employers implement the 2011 cut in payroll taxes that were included as part of the tax cut legislation passed by Congress, along with new income-tax withholding tables that employers will use during 2011. 

Notice 1036 contains the tax withholding tables and other information needed to implement the changes.  This notice, as well as Publication 15, the “Employer’s Tax Guide” should be available on the IRS website,, by the end of this week.

U.S.  Workers should see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a 2 percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2% to 4.2% of wages paid.  This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits. The new law also maintains the income-tax rates that have been in effect in recent years.

Employers should start using the new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but not later than Jan. 31, 2011. Employees will not need to complete new W-4 forms for this change to occur.

We do suggest, however, that employers ask their employees to review their W-4 adjustments annually, in case their are changes to the family status that may effect the amount employees wish to withhold from taxes.