Payroll Tax Cut Extended with a Creative Solution

On February 22, 2012, President Obama signed into law a bill extending payroll tax cuts and unemployment benefits through 2012, and preventing a pay cut for doctors who accept Medicare, ending a bitter fight over a measure aimed at boosting the tepid US economic recovery.

The extension will keep the employee portion of the Social Security tax at 4.2% through December 31, 2012, reverting back to 6.2% on January 1, 2013. The employer portion of the Social Security tax will remain at 6.2%.

Social Security tax applies to the first $110,100 of wages earned in 2012. This means that a salaried worker making $50,000 a year will be getting about $1,000 more in take-home pay over the course of the year.

Employers who use computer software to prepare their payroll should watch for updates from their software providers.

The measure sailed through the House of Representatives and the Senate with broad bipartisan support, despite grousing on both sides of the aisle over concessions made in a deal reached the day before. The House voted 293 to 132 in favor, and the Senate quickly followed, voting 60 to 36 in favor of the bill. The cost of the whole package has been estimated at $143 billion.

Senate and House negotiators crafted a compromise that would pay for the bill in part with the proceeds from auctions of broadband spectrum, rather than spending cuts or tax hikes. Aside from the obvious–coming up with the revenue to cover the extension of the payroll tax cut and long-term unemployment benefits–the compromise represents a generational shift in the country’s media landscape: the auction of public airwaves now used for television broadcasts to create more wireless Internet systems.

The result will eventually be faster connections for smartphones, iPads and other mobile devices, as many wireless systems have been overwhelmed with the ability to deliver downloaded maps, video games and movies.

The measure is a rare instance of the government compensating private companies with the proceeds from an auction of public property–broadcast licenses–that were given for free. It also advances the Obama administration’s broadband expansion goals, especially the creation of a nationwide direct-communications network for police, firefighters and other emergency workers. The spectrum auctions, which are projected to raise more than $25 billion, are at least one to two years away, but most of the programs they pay for will take effect immediately.

If you have any questions about the new bill signed into law, please contact me at (805) 963-7811 or esterling@bpw.com.