Tuesday June 18, 2013
Washington News
Payroll Tax Cut Extended
On February 17, the House and Senate both passed the Middle Class Tax Relief and Job Creation Act of 2012 (H.R. 3630). The 2% payroll tax cut was extended for the full year and compromises were made by both parties.
The Republican negotiators on the committee had been seeking offsetting budget cuts for the $100 billion cost. Democratic members had sought to increase income taxes on upper-income taxpayers. Both groups dropped their negotiating positions in the final compromise.
The bill includes three major provisions that affect payroll taxes, unemployment insurance and Medicare.
1. Payroll Tax Cuts – There is a 2% reduction from 6.2% to 4.2% in the payroll tax for employees. For most taxpayers, this is a savings of $1,000 for 2012. While the Social Security fund will lose $100 billion in revenue, this amount will be transferred through increasing the debt on the general fund.
2. Unemployment Insurance – For most states, the unemployment insurance may be extended to a maximum of 63 weeks. However, states with unemployment rates over 9% may be able to extend unemployment benefits for up to 73 weeks.
3. Medicare – The increased reimbursement rate for physicians known as the "Doc Fix" is enacted. For the past decade, physician reimbursement rates have been increased to reflect inflation.
The payroll tax compromise involves additional funding to pay for the unemployment benefit extension and the "Doc Fix." There will be broadband spectrum sales to media companies, increased pension contributions by new federal employees and reductions in payments to some Medicare hospitals and certain specialists' fees. The Medicare hospital and specialists' fees changes are designed so they will not affect patient care.
The net result is a compromise between both Republican and Democratic negotiators. Both parties appear pleased that the issue has been resolved for 2012. President Obama is expected to sign the bill promptly. He has strongly supported the payroll tax reduction for this year.
Editor's Note: Members of Congress expect this to be the last major tax bill until the November election. Democratic negotiators proposed including the "tax extenders" in the bill but they were not in the final version. As a result, it is still likely that tax extenders such as the Charitable IRA Rollover will be passed but the expected bill will not clear Congress until the end of November. While tax extenders have been passed with dates retroactive to January 1, donors who hope to use the Charitable IRA Rollover for 2012 may delay taking required minimum distributions (RMDs) until the end of November.
The Republican negotiators on the committee had been seeking offsetting budget cuts for the $100 billion cost. Democratic members had sought to increase income taxes on upper-income taxpayers. Both groups dropped their negotiating positions in the final compromise.
The bill includes three major provisions that affect payroll taxes, unemployment insurance and Medicare.
1. Payroll Tax Cuts – There is a 2% reduction from 6.2% to 4.2% in the payroll tax for employees. For most taxpayers, this is a savings of $1,000 for 2012. While the Social Security fund will lose $100 billion in revenue, this amount will be transferred through increasing the debt on the general fund.
2. Unemployment Insurance – For most states, the unemployment insurance may be extended to a maximum of 63 weeks. However, states with unemployment rates over 9% may be able to extend unemployment benefits for up to 73 weeks.
3. Medicare – The increased reimbursement rate for physicians known as the "Doc Fix" is enacted. For the past decade, physician reimbursement rates have been increased to reflect inflation.
The payroll tax compromise involves additional funding to pay for the unemployment benefit extension and the "Doc Fix." There will be broadband spectrum sales to media companies, increased pension contributions by new federal employees and reductions in payments to some Medicare hospitals and certain specialists' fees. The Medicare hospital and specialists' fees changes are designed so they will not affect patient care.
The net result is a compromise between both Republican and Democratic negotiators. Both parties appear pleased that the issue has been resolved for 2012. President Obama is expected to sign the bill promptly. He has strongly supported the payroll tax reduction for this year.
Editor's Note: Members of Congress expect this to be the last major tax bill until the November election. Democratic negotiators proposed including the "tax extenders" in the bill but they were not in the final version. As a result, it is still likely that tax extenders such as the Charitable IRA Rollover will be passed but the expected bill will not clear Congress until the end of November. While tax extenders have been passed with dates retroactive to January 1, donors who hope to use the Charitable IRA Rollover for 2012 may delay taking required minimum distributions (RMDs) until the end of November.
Published February 17, 2012
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