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Payroll Tax Cut Extended

On February 22, 2012 President Barack Obama signed off on the extension of the reduced 4.2% Social Security tax rate through the end of the year (The Middle Class Tax Relief and Job Creation Act of 2012, H.R. 3630). This was passed by Congress last week.

The employee portion of the Social Security tax was originally reduced from 6.2% of the first $106,800 of wages to 4.2% for 2011 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The employer portion remained at 6.2%.

Under the Temporary Payroll Tax Cut Continuation Act of 2011 the 4.2% rate on the employee portion was extended through Feb. 29, 2012. For 2012, that rate applies to the first $110,100 of wages.

The new bill extends the 4.2% rate on the employee portion through the end of 2012. As a result, a recapture provision included in the temporary extension will not take effect. Under that rule, taxpayers with income from employment for January and February that exceeds $18,350 would have been required to recapture the excess benefit they receive.

The rate on the employer portion remains 6.2% for all of 2012.