Most of us have heard that Congress finally extended the 2% payroll tax holiday for two months, namely, through February 29, 2012. In order to prevent highly paid employees from front loading their wages to take advantage of the payroll tax holiday for the entire $110,100 social security wage base, the legislation includes a recapture provision. Individuals must pay with their 2012 income tax return an additional 2% tax on wages received during the period January 1, 2012 through February 29, 2012 that exceed $18,350, which is 2/12ths of $110,100, the social security wage base for 2012. This additional tax is not subject to reduction by credit or deductions. In other words, if Congress does not extend the payroll tax holiday through the entire year, employees who are paid more than a proportionate amount of the wage base during the two month holiday period will be able to benefit from the payroll tax holiday only for the first $18,350 of their wages. Presumably, if the payroll tax holiday is extended for the entire year, this recapture provision will not be needed.
