Unemployment Benefits, Payroll Tax Cut Temporarily Extended

An extension of federal unemployment benefits will spare an estimated 1.1 million jobless Californians from losing benefits after the New Year, according to the California Employment Development Department (EDD).

President Obama recently signed legislation extending the unemployment benefits and a payroll tax cut for two months.Out of the more than one million people currently certifying for unemployment insurance (UI) benefits in California, approximately 100,000 were on their last extension of federal benefits and faced an immediate cut-off of benefits in early January, according to the EDD. More claimants would have run out of benefits each week thereafter if the legislation had not been approved.

The extension takes claimants into the New Year without an interruption of extension benefits. The extension does not include any additional weeks of benefits, but simply extends filing deadlines for starting a new tier of federal benefits, according to the EDD. The maximum time that anyone can collect UI benefits is still up to 99 weeks.

Congress also passed a two-month extension of the reduced payroll tax rate that was in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through February 29, 2012.

According to the Internal Revenue Service, the reduced Social Security withholding will have no effect on employee’s future Social Security benefits. The IRS states that employers should implement the new payroll tax rate as soon as possible in 2012 but no later than January 31, 2012.

For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.The new law also includes a “recapture” provision, which applies to those employees who receive more than $18,350 in wages during January and February, 2012.

The IRS issued a press release which provides more information on the payroll tax cut extension.  The payroll tax cut extension is expected to benefit nearly 160 million workers.

Gail Cecchettini Whaley, CalChamber Employment Law Editor/Staff Counsel