TaxAlerts Tax Article
March 2012 | Written by: Karen Reed, EA
On February 22, President Obama signed the Middle Class Tax Relief and Job Creation Act of 2012. The bill extends the payroll cut for employees and self-employed individuals through tax year 2012 and includes two nontax provisions – an extension of unemployment benefits and a Medicare “doc fix.”
Individuals who receive wages and salaries normally would pay Old–Age, Survivors, and Disability Insurance (OASDI) at a rate of 6.2%. The payroll tax cut, which was first enacted in 2011, reduced the rate by two percentage points to 4.2%. Similarly, the OASDI rate for self–employed individuals was reduced from 12.4% to 10.4%.
The government estimates that 170 million employees and self–employed individuals will benefit from the payroll tax cut extension. The increase in take-home pay for the average worker will be approximately $1,000 for the year.
The long battle over the millionaire surtax and the extension of the Bush–era tax cuts remains at an impasse. While President Obama has promised to veto any legislation that extends tax cuts on higher income taxpayers, Republicans are still refusing to consider a tax increase on millionaires. With the parties far from reaching an agreement on both issues, neither proposal made it into the new bill.