Home California Fiscal Issues and Information page What Does Payroll Tax Cut Extension Mean For State Employees?

What Does Payroll Tax Cut Extension Mean For State Employees?

Many workers will receive a credit as a result of the federal Temporary Payroll Tax Cut Continuation Act of 2011, which President Barack Obama signed into law on December 23, 2011.

This law provides that the tax rate paid by employees for Social Security remains at 4.2% for wages paid through February 29, 2012.

Prior to passage of the Act, the tax rate for Social Security had been expected to rise from 4.2 percent to 6.2 percent after December 31, 2011. Since the December 2011 payrolls were processed prior to the extension, they were calculated using the higher tax rate of 6.2 percent, and offsetting adjustments are needed.

State employees don’t need to take any action, as the IRS has instructed employers to handle the withholding changes. The majority of State employees will see adjustments for the over-withheld amounts in their January 2012 paycheck (issued in early February 2012).

Read a letter from the Controller's Office, and get answers to frequently asked questions, here.

Read what the IRS says about the Temporary Payroll Tax Cut Continuation Act of 2011 here.