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 on February 17,
2012. Senate approval quickly followed, also on February 17. 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.
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.
