The New Year can bring myriad headaches to business owners as they prepare for tax deadlines and prepare to file their year-end returns. The stress can also carry over to their employees as they prepare to file their own taxes. Well, Happy New Year from the US Congress. In a slightly surprising move Congress continued the payroll tax cuts that were enacted last year. To recap, they extended the reduction in the Social Security tax withholding rate keeping it at 4.2% of wages (down from 6.2%). This reduction will remain in effect for all wages paid through February 29, 2012. The IRS recommends that employers implement this adjustment as soon as possible (if they haven’t already done so) but ensure that the reduction is in effect no later than January 31, 2012. Furthermore, business owners must make sure that they make adjustments to their employees pay to reflect any excess in Social Security tax withholdings no later than March 31, 2012. While this may seem like a great deal of work just to ensure a 2 month change in pay, you can be sure that your employees will appreciate the extra cash in hand. Since the adjustments need to be made by employers or payroll providers no changes are need to be made by the employees themselves. Make sure that your employees (and yourself) are aware of the fact that this change will not have any adverse effect on future Social Security benefits. This extension does not come without a negative adjustment; keep in mind this has to be made up somewhere. All employees making in excess of $18,350 during the two month period to being the year will be subject to a 2% increase in withholding. This increase, being referred to as a recapture tax, is additional to any income tax liability the employee would be regularly subject to for 2012 and will be payable on the employees 2012 tax return (filed in 2013).