Tax Law Updates | New Statutes, Regulations, and Rulings
March 1, 2012
President Obama Signs the Payroll Tax Cut
Middle Class Tax Relief and Job Creation Act of 2012
P.L. 112-96. H.R. 3630, 2/29/2012
President Obama has signed the Middle Class Tax Relief and Job Creation Act of 2012—extending the payroll tax cut and emergency jobless benefits through the end of the year.
Before that, the President called on Americans from across the country to add their voices to the debate and let us know what they would do without an extra $40 in their paychecks.
According to the Congressional Budget Office’s (CBO) and Joint Committee on Taxation’s (JCT) estimates, enacting H.R. 3630 would change revenues and direct spending to produce increases in the deficit of $101.1 billion in fiscal year 2012 and $89.3 billion over the 2012-2022 period.
The bill would reduce revenues by $77.6 billion over the 2012-2022 period and increase direct spending by $11.7 billion over that period, according to CBO’s and JCT’s estimates.
To recall, on February 17, 2012, the House and the Senate voted to approve the Conference Report by Yeas and Nays votes of 293 to 132 and 60 to 36, respectively.
The conference report guarantees: up to 89 or 99 weeks of Unemployment Insurance (UI) through May, depending on the state; up to 79 weeks through August; and up to 73 weeks through December. It ensures the economically hardest-hit areas get the help families need to cover their bills and exceeds the President’s UI proposal, giving more support to the states and communities in the greatest need and helping to prevent layoffs.
One of the most important provisions of the legislation is Sec. 1001 which provides for the extension of payroll tax reduction. According to the Senate Finance Committee, this provision puts a full $1,000 in the pockets of the typical American family over the course of 2012.
Under current law, the employee-side Social Security tax equals 6.2 percent of the first $110,100 of wages and the self-employment equals 12.4 percent of such self-employment income. In December 2010, Congress reduced these tax rates by two percentage points during 2011. This meant that employees paid only 4.2 percent on wages and self-employed individuals paid only 10.4 percent on self-employment income.
The recently enacted Temporary Payroll Tax Cut Continuation Act of 2011 extended this holiday through February 2012. It capped the amount of compensation eligible for the holiday at $18,350 so that high-income workers were not able to claim the tax cut on all of their taxable wages, while other workers were not. This cap is not necessary if the payroll tax holiday is extended through the entire year. The Conference Agreement extends the payroll tax holiday through the end of 2012 and repeals the $18,350 cap.
The estimated cost of this provision is $93.219 billion over eleven years, the Senate Finance Committee said.
Section 3003 guarantees seniors have continued access to their doctors by fixing the Sustainable Growth Rate (SGR) through the end of the year. Medicare physician payment rates are scheduled to be reduced by 27.4 percent on March 1, 2012. This provision would avoid that reduction and extend current Medicare payment rates through December 31, 2012. The estimated cost of this provision is $17.3 billion over eleven years.
Section 3101 - Qualifying Individual Program - allows Medicaid to pay the Medicare Part B premiums for low-income Medicare beneficiaries with incomes between 120 percent and 135 percent of poverty. Under current law, QI expires February 29, 2012. This provision extends the QI program until December 31, 2012. The estimated cost of this provision is $600 million over eleven years.
Section 7001 provides a repeal of certain timing shifts of corporate estimated tax payments. Under current law, companies are generally required to pay corporate estimated taxes according to a regular schedule set by statute.
For companies with assets of $1 billion or more, that general payment schedule has occasionally been modified to shift the timing for payment of certain such installments. Typically, these provisions have increased covered corporations’ estimated tax payments that are due in the fourth quarter of particular years by a certain percentage, while decreasing those corporations’ payments by a corresponding amount in the first quarter of the following years.
Under the Conference Agreement, a series of these recently enacted timing shifts would be repealed, restoring the regular payment schedule that applied prior to their enactment. This provision has no revenue effect.
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