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Tax Alert: Payroll Tax Cuts in Effect During 2011 Are Extended Through February 2012


On December 23, 2011, Congress passed the Temporary Payroll Tax Cut Continuation Act of 2011 ("TTCA"). TTCA extends the payroll tax cuts initiated by the Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010 through February of 2012. Under the new act, wages earned during January and February of 2012 will be subject to an employee portion of Social Security Tax (OASDI) of 4.2 percent. In addition, the first $18,350 of self-employment earnings will be subject to self-employment tax of 13.3 percent (10.4 percent for OASDI and 2.9 percent for HI).

In addition to the above reduced rates, the law also adds a provision for a 2 percent tax on W-2 earnings in January and February of 2012 in excess of $18,350. This provision is in place to ensure that individuals earning more than the $110,100 maximum wage base do not receive a benefit on earnings in excess of two-twelfths (2/12) of the maximum wage base.

The self-employment tax deduction is also modified by the TTCA. Self-employed individuals will be able to deduct 59.6 percent of self-employment tax attributable to OASDI on the first $18,350 of self-employment income. Self-employed individuals will then be able to deduct 50 percent of self-employment tax attributable to OASDI on earnings in excess of $18,350.

For further information, please contact Brian Newman, CPA, J.H. Cohn partner, at bnewman@jhcohn.com or 860-678-6009 or your J.H. Cohn engagement partner at 877-704-3500.

Download the full PDF.

Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and J.H. Cohn LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

Published date: 12/28/2011

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