Now that it's official, the IRS has issued updated withholding guidance for how to handle the expiration of the payroll tax cut.
The payroll tax cut program was a 2% reduction in the Social Security portion of FICA taxes for employees (NOT the employer's portion), starting January 1, 2011, and ending December 31, 2012. The program was not renewed as part of the "fiscal cliff" negotiations between Congress and the Obama Administration.
The IRS says
Employers should start using the revised withholding tables and correct the amount of Social Security tax withheld as soon as possible in 2013, but not later than Feb. 15, 2013. For any Social Security tax under-withheld before that date, employers should make the appropriate adjustment in workers' pay as soon as possible, but not later than March 31, 2013.
In other words:
You have until February 15, 2013 to start withholding Social Security tax at 6.2% instead of 4.2%. But you will have to adjust withholding for the payrolls in which you did not make the adjustment. You must make a total adjustment to employee wages before March 31, 2013.
So, let's say you pay twice a month and you let 2 payrolls go by (January 15 and February 1, for example) before you can get the Social Security tax rate changed. That's within the February 15 deadline. But then you have to calculate the 2% difference for those two payrolls and reduce employee paychecks for this amount before March 31. You might want to spread the under-withheld amount over several paychecks, so the employees don't have as big a cut in one paycheck.
And don't forget to give employees an explanation of the change in their wages!
Of course, the sooner you can make the change, the less you will have to adjust.