Breaking News: Payroll Tax Cut Extension Passed
Posted by Kirsten Meyer on Sat, Dec 24, 2011 @ 04:32 AM
The Temporary Payroll Tax Cut Continuation Act of 2011
After much haggling, the government will provide an early Christmas gift to some
On Friday, December 23rd, House Republicans backed off of their initial opposition to a bill that will provide a two-month extension of the payroll tax cut, extend unemployment benefits, and prevent a 27% cut to doctors’ Medicare payments. With the House finally able to approve the bill, which had already been approved by the Senate last week (in slightly modified form), the President signed it into law. The modifications to the bill since it was passed by the Senate include provisions to help small businesses cope with tax changes, and to prevent manipulation of an employee’s pay if the tax cut is not extended beyond two months.
The extension prevents the increase of employee-side Social Security taxes from 4.2 percent back to 6.2 percent through Feb 29th, which translates to about $40 out of each paycheck for a family earning $50,000 a year. An estimated 160 million Americans would have been affected by this increase. Employers and payroll companies will be responsible for handling the withholding charges, so employees do not need to take any additional action.
The law also includes a new recapture provision which impacts high-earner employees receiving more than $18,350 in wages during the first two months of 2012. An additional tax will be imposed upon those high-earners at a rate of 2% of the wages they receive in January and February of 2012 that is in excess of $18,350. This recapture tax is an add-on to income tax liability and is payable in 2013 with the employee’s 2012 taxes.
As is indicated in the name of the bill, this tax relief is only temporary and will not extend beyond February, 2012 without further action from Congress. The President is urging Congress to pass a full one-year extension, but that has yet to be hammered out.
Sources:
Stephanie Condon, CBS NEWS. “Payroll Tax Cut Extension Passed in Congress,” Dec 23, 2011.
Jennifer Steinhauer, New York Times. “House G.O.P. Leaders Agree to Extension of Payroll Tax Cut.” Dec 23, 2011.
Internal Revenue Service. IRS publication IR-2011-124, Dec. 23, 2011. Accessed at www.irs.gov.