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Payroll Tax Debate Continues
On December 23, President Obama signed the Temporary Payroll Tax Cut Continuation Act of 2011 (H.R. 3765). This two-month payroll tax cut bill will reduce Social Security contributions by employees from 6.2% to 4.2% during January and February of 2012. The employer contribution amount remains 6.2%.
President Obama was pleased with the bill and noted, "Anyone who knows what it's like to stretch a budget knows that at the end of the week or the end of the month, $40 can make all the difference in the world." He was referring to the estimate that the average worker will receive an increase in his or her paycheck of $40 with the reduced payroll tax.
Majority Leader Harry Reid (D-NV) also supported the bill. He stated, "I would hope the new members of the House understand legislation is the art of compromise, consensus building." Reid and Speaker of the House John Boehner (R-OH) had engaged in a fairly contentious contest prior to the passage of the two-month extension.
Both leaders have appointed a committee to negotiate a potential full year payroll tax cut. Sen. Reid has named Senate Finance Committee Chair Max Baucus (D-MT), Sen. Benjamin Cardin (D-MD), Sen. Jack Reed (D-RI) and Sen. Robert Casey Jr. (D-PA) to the committee. The House Democrats include Ways and Means Committee Ranking Minority Member Sander Levin (D-MI), Rep. Xavier Becerra (D-CA), Rep. Chris Van Hollen (D-MD), Rep. Allyson Schwartz (D-PA) and Rep. Henry Waxman (D-CA).
Speaker Boehner named Ways and Means Chair Dave Camp (R-MI), Rep. Kevin Brady (R-TX), Rep. Tom Price (R-GA), Rep. Tom Reed (R-NY), Rep. Renee Ellmers (R-NC), Rep. Nan Hayworth (R-NY), Rep. Fred Upton (R-MI) and Rep. Greg Waldon (R-OR).
The Democratic members of the committee continue to believe that a surtax on incomes in excess of $1 million is the proper method to pay for the payroll tax cut. Reid stated that he thinks the surtax is appropriate because he has, "talked to Senate Republicans who think there should be a fair tax on rich people."
The Republican members have proposed reforms in the administration of the unemployment benefits and a one-year pay freeze for federal employees. Meetings of the joint committee will start in early January.
The Temporary Payroll Tax Cut Continuation Act of 2011 will reduce the contributions of all employees to Social Security by 2%. However, part of the bill creates a new "recapture" tax for upper-income taxpayers.
Taxpayers pay the 4.2% (January and February) or 6.2% (balance of 2012) employee contribution on income up to $110,100 for 2012. The Social Security contributions are not levied on incomes above that level.
Under the payroll tax bill, a taxpayer with income over $18,350 for the two months will pay a 2% additional income tax on his or her excess earnings.
If this provision is extended for the full year, the upper-income person will pay 4.2% payroll tax on income up to $110,100. However, on the income from $110,100 to $220,200, the person would pay an added 2% income tax.
The 2% savings could amount to $2,202 on the first $110,100 of income. Assuming that the "recapture" provision is applicable for the full year, the added tax of 2% on the amount in excess of $110,100 will eventually amount to $2,202. In effect, individuals with incomes over $220,200 will pay the full 6.2% of employee contribution for Social Security. There will be no deductions or credits against the additional 2% income tax.
President Obama was pleased with the bill and noted, "Anyone who knows what it's like to stretch a budget knows that at the end of the week or the end of the month, $40 can make all the difference in the world." He was referring to the estimate that the average worker will receive an increase in his or her paycheck of $40 with the reduced payroll tax.
Majority Leader Harry Reid (D-NV) also supported the bill. He stated, "I would hope the new members of the House understand legislation is the art of compromise, consensus building." Reid and Speaker of the House John Boehner (R-OH) had engaged in a fairly contentious contest prior to the passage of the two-month extension.
Both leaders have appointed a committee to negotiate a potential full year payroll tax cut. Sen. Reid has named Senate Finance Committee Chair Max Baucus (D-MT), Sen. Benjamin Cardin (D-MD), Sen. Jack Reed (D-RI) and Sen. Robert Casey Jr. (D-PA) to the committee. The House Democrats include Ways and Means Committee Ranking Minority Member Sander Levin (D-MI), Rep. Xavier Becerra (D-CA), Rep. Chris Van Hollen (D-MD), Rep. Allyson Schwartz (D-PA) and Rep. Henry Waxman (D-CA).
Speaker Boehner named Ways and Means Chair Dave Camp (R-MI), Rep. Kevin Brady (R-TX), Rep. Tom Price (R-GA), Rep. Tom Reed (R-NY), Rep. Renee Ellmers (R-NC), Rep. Nan Hayworth (R-NY), Rep. Fred Upton (R-MI) and Rep. Greg Waldon (R-OR).
The Democratic members of the committee continue to believe that a surtax on incomes in excess of $1 million is the proper method to pay for the payroll tax cut. Reid stated that he thinks the surtax is appropriate because he has, "talked to Senate Republicans who think there should be a fair tax on rich people."
The Republican members have proposed reforms in the administration of the unemployment benefits and a one-year pay freeze for federal employees. Meetings of the joint committee will start in early January.
Payroll Tax Cut "Recapture" Plan
The Temporary Payroll Tax Cut Continuation Act of 2011 will reduce the contributions of all employees to Social Security by 2%. However, part of the bill creates a new "recapture" tax for upper-income taxpayers.
Taxpayers pay the 4.2% (January and February) or 6.2% (balance of 2012) employee contribution on income up to $110,100 for 2012. The Social Security contributions are not levied on incomes above that level.
Under the payroll tax bill, a taxpayer with income over $18,350 for the two months will pay a 2% additional income tax on his or her excess earnings.
If this provision is extended for the full year, the upper-income person will pay 4.2% payroll tax on income up to $110,100. However, on the income from $110,100 to $220,200, the person would pay an added 2% income tax.
The 2% savings could amount to $2,202 on the first $110,100 of income. Assuming that the "recapture" provision is applicable for the full year, the added tax of 2% on the amount in excess of $110,100 will eventually amount to $2,202. In effect, individuals with incomes over $220,200 will pay the full 6.2% of employee contribution for Social Security. There will be no deductions or credits against the additional 2% income tax.
Published December 30, 2011
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