OUR THOUGHTS ON:

Will the Payroll Tax Holiday be Extended?

Tax

By Ron Kramer

“Twas the night before Christmas …….
…..and the Payroll Tax Cut is Stuck in the House! 

The holiday spirit for some 160 million Americans may be somewhat dampened by the current uncertainty as to whether the Social Security (FICA) payroll tax holiday will be extended by Congress into 2012.

Background

On December 13, the U.S. House of Representatives passed H.R. 3630, The Middle Class Tax Relief and Job Creation Act which contained the provision to extend the FICA payroll tax holiday through all of 2012. The FICA payroll tax holiday would result from the reduction of the employee’s FICA payroll from 6.2% to 4.2% for 2012. For a worker earning $50,000 annually, the payroll tax holiday would result in a reduction of FICA tax withheld from an employees pay and a corresponding increase in spendable take home pay of about $1,000 for the year. A similar payroll tax holiday is in effect for 2011. The House bill was sent on to the Senate for consideration.

On December 19, the U.S. Senate voted 89 to 10 to adopt an amended version of H.R. 3630 which would extend the payroll tax holiday for only two months into 2012. Accordingly, additional legislation would be necessary to further extend the payroll tax cut further into 2012. The Senate version of the payroll tax cut would provide a $166.67 tax cut benefit to that same worker making $50,000 per year, unless further extended. The Senate bill was scaled back for a two month period since agreement could not be reached on the method of paying for a full year tax cut and other provisions of the bill.

On December 20, the House rejected the Senate amendment to H.R. 3630- titled The Temporary Payroll Tax Cut Continuation Bill of 2011. GOP leaders indicated that the Senate bill fell short of the full year extension approved by the House on December 13. Speaker Boehner has requested that the Senate come back into session to attempt to hammer out a new bill to pass a full year extension of the payroll tax cut through conference committee.

How It Stands

Thus, without a conference agreement, or a change in heart by the GOP controlled House to accept the Senate amendment, the fate of the 2012 payroll tax holiday remains up in the air. Also at stake in H.R, 3630 is the extension of 100% bonus depreciation for 2012 and the continuation of federal unemployment benefits for the long-term unemployed beyond 2011.

Without the knowledge that they will have the payroll tax holiday again for 2012, many Americans may feel that Congress just left a big lump of coal in their stocking! 

Example of Additional Take Home Home Pay From Continuation of the Social Security Payroll Tax Holiday Proposed by Congress

Facts Assumed:

  • Most examples of the benefit of the payroll tax holiday to the average American worker given by President Obama and members of Congress talk about a worker making $50,000 per year.
  • This example claims that such an employee would have about $1,000 more in annual take home pay with the payroll tax holiday. 
  • The payroll tax holiday proposed in H.R. 3630, The Middle Class Tax Relief and Job Creation Bill, reduces the employees' share of the 6.2% FICA tax (old age and survivors tax) to 4.2%.  The Medicare tax remains at 1.45%.

Example:

An employee earning $50,000 per year is paid $4,166.67 per month.  His or her monthly payroll stub would read as follows

 

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 This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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