Daily Tax Update - December 23, 2011: Congress Passes Two-Month Payroll Extension - Obama Signs Into Law

CONGRESS PASSES TWO-MONTH PAYROLL EXTENSION BILL – OBAMA SIGNS INTO LAW: This morning, both the House and Senate passed a two-month extension of the payroll tax by unanimous consent.  The bill provides for an extension of the 4.2 percent Social Security payroll tax for individuals, extends unemployment insurance benefits, and prevents a planned cut to reimbursements for Medicare physicians.  The bill also includes a requirement for President Obama to make a decision within 60 days on a permit to authorize construction of the Keystone pipeline.  The President signed the bill into law this afternoon.

  • According to the IRS, "Under the terms negotiated by Congress, the law also includes a new 'recapture' provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year  amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).    This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions.  The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision."


Notice 2012-03 provides guidance on current refunding issues (as defined in Treas. Reg. §1.150-1(d)(3)) that refund outstanding prior issues of bonds that qualify for tax-exempt bond financing under certain disaster relief bond programs. The Notice applies to current refunding issues that are used to refund original tax-exempt bonds that met the qualification requirements for one of the following programs: (1) "qualified Gulf Opportunity Zone Bonds" under section 1400N of the Internal Revenue Code; (2) "qualified Midwestern disaster area bonds" under section 702(d)(1) of the Heartland Disaster Tax Relief Act of 2008 (the "Heartland Disaster Act"); and (3) "qualified Hurricane Ike disaster area bonds" under section 704(a) of the Heartland Disaster Act.

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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