On Friday, February 17, the U.S. Senate and House passed a bipartisan deal to extend the 2% employee payroll tax cut through December 31, 2012. President Obama is expected to sign the legislation when it reaches his desk. The bill passed in the Senate by a 60-36 vote less than an hour after the House approved it by a 293-132 margin. Employees will continue to contribute 4.2% of wages to FICA, rather than 6.2%.
An agreement on the extension was reached after Republicans dropped their requirement that the tax cut be fully paid for. The nonpartisan Congressional Budget Office has estimated that the agreement would increase the federal deficit by $89 billion over 10 years.
The legislation also includes provisions related to unemployment compensation and the so-called “doc fix” which deals with physician payment rates under Medicare. Those provisions are fully paid for in the legislation.
In states with unemployment rates higher than the national average of 8.3%, the maximum time an unemployed person can receive benefits will drop from 99 to 73 weeks. The maximum length of benefits for people in states with an average unemployment rate of 8.3% or lower will drop to 63 weeks or as far down as 40 weeks.
Under the legislation, states will be allowed to drug test applicants for unemployment benefits. Also, welfare beneficiaries will be banned from accessing public assistance funds at ATMs in strip clubs, liquor stores, and casinos.
It is estimated that the FICA payroll tax cut is worth $83 a month for a taxpayer earning $50,000 yearly.
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