On February 22nd, President Obama signed into law an extension through the end of 2012 of the payroll tax cut, unemployment benefits, and the so-called “doc fix” to prevent Medicare physician reimbursement rates from plunging.
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 signed the bill as soon as it reached the White House.
The Joint Committee on Taxation (JCT) has estimated that approximately 170 million wage earners and self-employed individuals will benefit from the payroll tax reduction in 2012. The White House figures that taxpayers on average will see a $1,000 increase in take-home pay in 2012. The extension benefits both employees and those self-employed. The IRS has indicated it would be ready to quickly implement a full-year extension of the payroll tax cut.
To offset the payroll tax extension, Democrats had proposed a surtax on millionaires, which met with strong Republican resistance. Failure to include that provision in the new law–possibly the last tax-related bill to be passed by Congress in the near future–significantly lowers the likelihood of any new tax on higher income individuals being approved by Congress before the November elections.
For more information on the payroll tax cut extension bill, click the download button below to view the CCH tax briefing.
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