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Congress Passes Payroll Tax Cut Extension

Last Friday, the House of Representatives and the Senate both passed a bill that will extend the reduced 4.2% Social Security tax rate through the end of the year (The Middle Class Tax Relief and Job Creation Act of 2012, H.R. 3630). The vote was 293–132 in the House and 60–36 in the Senate. The bill now goes to President Barack Obama, who is expected to sign it quickly.
 
The employee portion of the Social Security tax was reduced from 6.2% of the first $106,800 of wages to 4.2% for 2011 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312. (The employer portion remained at 6.2%.) Under the Temporary Payroll Tax Cut Continuation Act of 2011, P.L. 112-78, enacted Dec. 23, 2011, the 4.2% rate was extended through Feb. 29, 2012. For 2012, that rate applies to the first $110,100 of wages. H.R. 3630 extends the 4.2% rate through the end of 2012. As a result, a recapture provision included in the temporary extension will not take effect. Under that rule, taxpayers with income from employment for January and February that exceeds $18,350 would have been required to recapture the excess benefit they receive. The act also extends certain unemployment benefits and blocks a cut in Medicare payments to doctors. The extension of the payroll tax cut is estimated by the Joint Committee on Taxation staff to cost $93 billion in revenue over the next two years. The act raises revenue through an auction of the spectrum of public airwaves, currently reserved for television, to allow for more wireless Internet systems. The auctions are projected to raise $15 billion. The act also repeals earlier-enacted shifts in the timing of corporate estimated tax payments.

Content provided by the Journal of Accountancy http://www.journalofaccountancy.com/Web/20125176.htm