Payroll Tax Cut Extended For Two Months

On Dec. 23, 2011, Congress and President Obama delivered a last-minute holiday gift to working taxpayers. 

Both parties agreed to temporarily extend the payroll tax cut that has been in place for 2011. The employees' share of the Social Security tax remains at 4.2 percent, instead of returning to the normal 6.2 percent level.

The extension lasts through the first two months of 2012. Had Congress not acted to extend the lower rate, workers would have seen a drop in their take-home pay beginning in January. Of course, a two-month extension means that Congress will have to deal with the same issue again in eight to nine weeks. 

It remains to be seen whether Congress will:

  • Allow the rate to increase to 6.2 percent
  • Opt for another temporary fix
  • Find a permanent solution
  • Take some other action

Somewhat obscured by the payroll tax debate is the fact that dozens of other temporary tax provisions are being allowed to expire on Dec. 31, 2011, due to lack of congressional action.

Included among the expiring provisions are such popular items as:

  • Charitable contributions from IRAs
  • The alternative minimum tax "patch"
  • The classroom teachers' deduction
  • 100 percent bonus depreciation for businesses
  • The enhanced IRS Code Sec. 179 expensing election

Will Congress be able to act during an election year to retroactively restore some of these tax breaks? The answer is uncertain. 

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