Payroll tax cut continued

Congress extended a reduced payroll tax rate through the end of February, after implementing the 2 percent cut last year in an effort to retain and create jobs.

The Social Security tax-withholding rate will remain at 4.2 percent of wages paid through Feb. 29, before being scheduled to increase to 6.2 percent.

According to the IRS, the extension also includes a new “recapture” provision that applies only to those employees whose annual salary totals at least $110,100. The law imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350.

The recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012, the IRS added, and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year.