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SPECIAL TAX REPORT FROM C&L |
This special tax report brings breaking news with regard to the payroll tax cut for 2012. Please contact us at 516-791-1303 or info@clcpasllp.com with any questions, and follow us to keep up to date on tax law changes as they happen.
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2012 MIDDLE CLASS TAX RELIEF AND JOB CREATION ACT |
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Congress Passes 2012 Payroll Tax Holiday Extension
Congress has extended the employee-side payroll tax cut through the end of 2012. After weeks of uncertainty over whether an agreement could be reached, the House passed the Middle Class Tax Relief and Job Creation Act of 2012 by a vote of 293 to 132 on February 17, 2012. Senate approval quickly followed, also on February 17, by a vote of 60 to 36. Lawmakers agreed not to require the $93.2 billion estimated cost for the payroll tax cut extension to be offset by revenue-raising provisions. A potential impasse over revenue increases was avoided entirely when both parties agreed to offset costs of the full-year, two percentage point payroll tax cut through transfers from the general fund of the Treasury to the OASDI trust fund. In a revenue neutral provision, however, the new law eliminates a timing-shift in the estimated tax payments that had been required of certain large corporations under previous laws. Non-tax provisions within the new law extend unemployment benefits and implement a "doc fix" for Medicare. President Obama is expected to sign the bill as soon as it reaches the White House.
Full Year Extension
The Temporary Payroll Tax Cut Continuation Act of 2011 (2011 Payroll Continuation Act) had extended the employee-side payroll tax rate reduction of two percentage points through the end of February 2012. The new law extends the employee-side payroll tax holiday through the end of 2012.
Under the new law, individuals who receive wages and salaries will pay Old-Age, Survivors, and Disability Insurance (OASDI) taxes at a rate of 4.2 percent for calendar year 2012. The OASDI tax rate for self-employed individuals for 2012 similarly has been extended at a reduced 10.4 percent level through the end of 2012.
Recapture repealed
When Congress passed the two-month extension of the payroll tax cut, the extension included a recapture provision, which was intended to apply to individuals who receive more than $18,350 in remuneration in January and February 2012. The recapture tax would have been payable in 2013 when the individual filed his or her income tax return for the 2012 tax year. The House Ways and Means Committee explained that the recapture provision would not apply when Congress approved a full-year extension of the payroll tax cut for 2012. The new law holds true to that promise by amending the definition of "Payroll Tax Holiday Period" in the 2010 Tax Relief Act to mean calendar years 2011 and 2012, and by repealing the January-February recapture provisions.
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