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Payroll Tax Cut Extended for Two Months
On the morning of Dec. 23, the U.S. House of Representatives and the U.S. Senate passed by unanimous consent a two-month extension of the payroll tax cut, unemployment benefits, and the “doc fix,” which preserves the current Medicare reimbursement for physicians. President Barack Obama signed the Temporary Payroll Tax Cut Extension Act of 2011 (PDF) into law the same day.
“Because of this agreement, every working American will keep his or her tax cut — about $1,000 for the average family,” Obama said in a statement Dec. 22. “That’s about $40 in every paycheck. Vital unemployment insurance will continue for millions of Americans who are looking for work. And when Congress returns, I urge them to keep working to reach an agreement that will extend this tax cut and unemployment insurance for all of 2012 without drama or delay.”
Republican leadership in the House had opposed the two-month extension of the 2-percentage-point cut in Social Security and Medicare withholding taxes as late as Thursday morning, Dec. 22. Speaker of the House John Boehner (R-Ohio) changed his position later that day under pressure from Senate Republicans who had agreed to a compromise with Senate Democrats.
“Sometimes it’s politically difficult to do the right thing,” Boehner said Dec. 22.
House Republicans had wanted a one-year extension rather than the two-month fix. When Congress reconvenes, both parties will work to agree to a deal to extend the cuts for one year despite disagreements over how to pay for a longer-term extension and how to reform the unemployment insurance program.
The bill includes technical corrections to address concerns from payroll processors and small businesses over the practicality of a two-month extension. It also corrects a flaw in the Senate-passed bill by allowing employers to withhold payroll taxes at the reduced rate of 4.2 percent on all wages paid during the two-month period, subject only to the full 2012 wage base of $110,100 and without regard to the new $18,350 cap on wages earned through the end of February. This change prevents employers from having to comply with an unnecessary new burden.
The bill also includes a provision requiring President Obama to make a decision on the Keystone XL oil pipeline from Canada to Texas within 60 days.
LAST UPDATED 12/27/2011