Middle Class Tax Relief and Job Creation Act of 2012
The payroll tax holiday gets an extension
In late February, Washington passed another Tax Relief and Job Creation bill that extends the 2% payroll tax break for all employees through 2012. This means W-2 employees will pay 4.2% versus the normal 6.2% and self-employed will pay 10.4% versus 12.4% for the balance of the year. Medicare payments remain unchanged.
In late 2011, Congress extended the lower Social Security tax (OASDI portion of FICA) through February, 2012. The short two-month extension was all Congress could agree to because of disagreement on how to pay for the tax cut. When Congress came back from their holiday break, bills were introduced to extend this tax break through 2012. Also included in the bill were unemployment benefit payment extensions.
What does it mean?
Review your paystubs once again. Some companies were able to make the change, some were not. Simply make sure the FICA portion you pay equals 4.2% of the first $110,100 of your wages in 2012.
What does it cost? The cost of this portion of the bill is estimated to be $93.2 billion over 11 years. The tax-cut is being funded by transferring money from the “general fund”. Basically one part of the government loaning money to another part of the government.
More money to pay back. While some of the cost of the additional tax breaks and increased benefits are being paid for by selling our airwaves to private companies, the majority is being added to the debt.
I thought that Social Security was going broke? So why are they doing this now? Good question, and a highly debated topic. That’s one to ask your representative.
How much do I benefit? The Whitehouse/Congress assumes the average family will receive approximately $1,000 in additional take home pay.
What about my January/February Wages? Those who received more than the maximum allowed benefit for the reduced tax in January and February will not have to repay the excess benefit. Instead, wage withholding adjustments will need to be made over the balance of 2012.