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Congress Passes Full Year Extension of 2% Payroll Tax Cut

March 3, 2012

In February, the U.S. Senate and House of Representatives passed H.R. 3630, the Middle Class Tax Relief and Job Creation Act of 2012 (Tax Relief Act of 2012). The bill was recently signed by President Obama.

The Tax Relief Act of 2012 extends through the end of 2012—meaning the reduction in the social security tax rate paid by employees decreases from 6.2% to 4.2% (which was first implemented for 2011 by the Tax Relief Act of 2010). With the reduction set to expire December 31, 2011, and the employee social security tax rate scheduled to reset to 6.2%, Congress passed the Temporary Payroll Tax Cut Continuation Act of 2011, which extended the reduction through the end of February 2012. Congress has now granted the extension through the 2012 year.

The Tax Relief Act of 2012 also repeals the 2% "recapture tax" that would have required individuals who are paid more than $18,350 in January and February 2012 to pay an extra 2% tax so they would not gain more of a benefit from the temporary payroll tax cut than employees who were not paid more than that amount during those two months.

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