President Obama signed the Middle Class Tax Relief and Job Creation Act of 2012 on February 22. The new bill extended the employee’s payroll tax leave and reduced the payroll tax for the working class and self-employed workers for 12 months.
2011 payroll tax leave
As of 2011, the tax rate of OASDI for employees is 6.2%(12.4% for self-employed individuals who pay employee share and employer share). This tax helps to fund social security.
In 2011, the labor and forestry tax leave took effect. Wage tax leave reduced the share of employees in OASDI tax from 6.2% in 2011 to 4.2%, a decrease of 2 percentage points, reaching the social security wage standard of 16800 dollars. In 2011, the tax rate of individual households in previous years was reduced to a similar rate.
Two months late
The payroll tax leave in 2011 was initially formulated as a one year tax reduction. It is expected to expire on December 31, 2011.
In December 2011, Congress approved the extension of payroll tax leave in January and February 2012 for two months. The extension of these two months enables individuals who have received their salaries by the end of February 2012 to enjoy the OASDI tax rate of 4.2%, while self-employed individuals can enjoy similar concessions.
Difficult negotiations
At the beginning of 2012, legislators began to negotiate to extend the two month payroll tax leave to the rest of this year. The 2011 payroll tax leave was not offset. In other words, there is no compensation for lost income elsewhere. The two month delay was offset by higher fees on some government backed mortgages. Some lawmakers want to offset any one-year extension of payroll tax cuts.
Several countervailing measures, such as imposing additional taxes on individuals with income of more than $1 million and canceling some business tax preferences, were proposed and rejected. In the end, the legislator could not reach any compensation agreement, decided not to pay wages, and extended the payroll tax holiday. They did agree to extended unemployment benefits and so-called “medical insurance” payments. Modify Document “; there is an offset.
The House of Representatives, like the Senate, passed the “middle-class tax relief and job creation bill” on February 17. President Obama signed the bill on February 22.
Payroll tax leave in 2012
The 2012 payroll tax leave is essentially an extension of the 2011 payroll tax leave. This means that wage earners paid OASDI tax at 4.2% in 2012 up to the social security wage base(USD 10100 in 2012). High self use individuals also received a 2% reduction in OASDI tax in 2012. However, the employer’s OASDI tax rate did not decrease, and it was 6.2% in 2012.
According to the White House, on average, “taxpayers are expected to save about $1000 in 2012. Individuals whose income is higher than the 2012 social security wage base($10100) will enjoy a discount of $202.
No recapture rules
For some taxpayers, the good news is that the Middle Class Tax Relief and Employment Creation Act repealed the rules of Congress that delayed the recapture of Congress by two months. The recapture rule is to prevent high-income individuals from not extending the payroll tax reduction in 2012 and enjoying too much preferential treatment. The payroll tax reduction was extended to the end of 2012, and the new law explicitly cancelled the recapture provision.
Employers and payroll processors
The 2012 payroll tax cut vacation is essentially an extension of the 2011 payroll tax cut vacation, so employers and wage processors will have no problems. The US Internal Revenue Service(IRS) reported that it is expected that there will be no problems in the management extended to the end of 2012. The 2012 Form 941, which has been amended, published that employers are allowed to use their quarterly federal tax returns to include revised reporting obligations.
