President Obama signed late yesterday a new law extending the payroll tax cut for the first two months of 2012. This means for January and February 2012, the employee's portion of the FICA tax will be 4.2% instead of the normal 6.2%. For self-employed farmers, for net SE farm income up to $18,350 shall be at the reduced rate (this is reduced by any other wages earned during the period). If the payroll tax cut is not extended for the rest of the year, I am assuming the W-2 would have to be revised to reflect any wages earned between January 1, 2012 and February 29, 2012 (what a mess that would be).
However, the new law has a recapture provision for any wages earned during the first two months in excess of $18,350. This recapture provision provides for a tax of 2% on all wages in excess of this amount earned during the first two months. The $18,350 is one-sixth of the FICA wage base of $110,100 for 2012.
The IRS will interpret this new section including how this tax would be paid. We will keep you posted.