Trinity Tax Service Kenneth M Rumberger, CPA New Port Richey, FL CPA
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Payroll Tax Cut Extended


Post Date: 2/20/2012
Last Updated: 2/20/2012

Summary
Cross References
• H.R. 3630

On Friday February 17, 2012, the House approved the Middle Class Tax Relief and Job Creation Act of 2012 by a vote of 293 to 132. The Senate acted less than an hour later and approved the bill by a vote of 60 to 36. The President is expected to sign the bill into law.

Extension of payroll tax cut. Under prior law, the employee’s share of the Social Security tax was 6.2% of the first $110,100 of wages paid during 2012. The Social Security tax portion of the self-employment tax was 12.4% of the first $110,100 of self-employment income. In December 2010, Congress reduced these tax rates by two percentage points for 2011. This meant that employees paid only 4.2% on wages and self-employed individuals paid only 10.4% on self-employment income. The recently enacted Temporary Payroll Tax Cut Continuation Act of 2011 extended the 2% payroll tax cut through February 2012. It capped the amount of compensation eligible for the payroll tax cut at $18,350. The new law extends the payroll tax cut through the end of 2012 and repeals the $18,350 cap.

Unemployment benefits. The new law changes several unemployment benefit provisions, including the following:
• Temporarily extends benefits for up to 99 weeks, depending on the state.
• Requires an unemployment insurance beneficiary to be able to work, available to work, and actively seeking work.
• Under certain circumstances, states may enact legislation to require an applicant to submit to and pass a drug test for the unlawful use of controlled substances.
• Allows states to create self-employment assistance programs to help unemployed workers while they are establishing businesses.

Medicare payments to doctors. Under the Health Care Reform Act provisions, Medicare physician payment rates were scheduled to be reduced by 27.4% on March 1, 2012. The new law repeals that provision and extends current Medicare payment rates through December 31, 2012.

Federal employee pensions. Most federal civilian employees who started their federal service after 1986 are participants in the Federal Employees Retirement System (FERS), under which they make a contribution toward a retirement annuity. The employee contribution rate is currently 0.8% of pay. Employee contributions and benefits for special occupational groups and Members of Congress are higher. Separate but comparable retirement systems exist for Foreign Service and CIA employees. The new law increases contributions by 2.3 percentage points only for employees joining the federal service after December 31, 2012 with less than five years of service as of the end of 2012. No change is made to pension benefits. The new law does not affect current federal workers’ pension contributions or benefits.


Ken Rumberger | 02/24/2012



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