Before leaving for recess, Congress passed and the President signed the Temporary Payroll Tax Cut Continuation Act of 2011 (HR 3765) into law. The Act:

• Extends the 2% reduction (from 6.2% to 4.2%) in the employee portion of social security taxes for two months (through February 29, 2012).
• Extends emergency unemployment benefits for two months.
• Extends certain Medicare payments to doctors (the "doc fix") and other federal programs for two months.
• Pays for the extension by increased fees for Fannie Mae and other government supported loans.
• Provides conditions for going forward with the Keystone XL pipeline.

The House and Senate have agreed to appoint conferees to work on longer-term extensions of the payroll tax cut, unemployment, and other benefits after the holiday break.

The IRS issued news release IR-2011-124 reminding employers that the 2% reduction should be implemented as soon as possible (if not already implemented), but not later than January 31, 2012.

• Any over-withholding of payroll taxes in January should be corrected by an offsetting increase in employees' pay as soon as possible in February, but not later than March 31, 2012.
• A recapture tax may apply to higher-income employees. The recapture tax is 2% of wages over $18,350 received during the two-month period ($18,350 equals 2/12 of the maximum 2012 social security wage base of $110,100). The recapture tax would be calculated and paid in 2013 when the employees file their 2012 income tax returns. If Congress extends the tax cut for the whole year, there will likely be changes to the recapture tax.