Employees' OASDI Tax Rate for 2012 Lowered
In 2010 President Obama signed into law the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010. Included in the act was a provision that reduced the OASDI (Old Age, Survivors and Disability Insurance) withholding rate from 6.2% to 4.2% for 2011. This change was effective with wages paid on or after January 1, 2011, and included an expiration date of December 31, 2011. In order to comply with the expiration date of December 31, 2011, and to ensure that December earnings were paid in a timely manner, the OASDI tax rate was changed back to 6.2% in time for the pay compute of the January 3, 2012 paychecks.
On December 23, 2011, President Obama signed the Temporary Payroll Tax Cut Continuation Act of 2011 to extend the 2% reduction in the OASDI tax withholding on wages paid from January 1, 2012, through February 29, 2012. Since this change was not enacted in time to affect the January 3, 2012 paychecks, monthly employees paid on January 3, 2012, were subject to the OASDI withholding tax at the old rate (6.2%). PPS will automatically refund the difference in the two rates on employees' next paycheck. The employers' matching contribution rate will remain at 6.2%.
Employees paid on a biweekly basis will have the appropriate OASDI withholding tax reflected on their paychecks.
As a result of the timing of the change, the distribution of OASDI expenses to departments and fund sources will be incorrect for both December and January. This is because the PPS is programmed to calculate the employer share of OASDI based on the contribution paid by the employee. As a result, charges to departments and fund sources in the December PPP5302 for monthly-paid employees will be overstated but offset by an understatement of the expenses in the January PPP5302. The employee's deduction and employer's contribution should be back to the normal rates in the February PPP5302 report.