The IRS released revised Form 941, enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.

Under the Middle Class Tax Relief and Job Creation Act of 2012, workers will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect before 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, enacted on Dec. 23.

No action is required by workers to continue receiving the payroll tax cut. The lower rate will not affect workers’ future Social Security benefits.  Transfers from the General Fund will make up the reduction in revenues to the Social Security Trust Fund.

Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.

The new law also repeals the two-percent recapture tax included in the December legislation, which effectively capped at $18,350 the wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.