On February 17, Congress passed the “Middle Class Tax Relief and Job Creation Act of 2012” (the Act) and sent it to the President for his signature. The Act extends the 2-percentage-point payroll tax cut through the end of 2012, and also repeals a number of estimated tax shifts for large corporations. Here are highlights of the tax changes in this new law.

For tax years beginning in 2012, the TTCA also provided that the social security rate for a self-employed individual remained at 10.4%, for self-employment income of up to $18,350 (reduced by wages subject to the lower social security rate for 2012).

New law. The Act provides that the “payroll tax holiday period” means calendar years 2011 and 2012. (Sec. 601(c) of the 2010 Tax Relief Act, as amended by Act Sec. 1001(a)) Thus, the 2-percentage point payroll tax reduction and the 2-percentage point reduction in the social security tax under the medicare tax for the self-employed will apply through Dec. 31, 2012. As a result, for 2012, employees will pay only 4.2% Social Security tax on wages up to $110,100 (wage base for 2012) and self-employed individuals will pay only 10.4% Social Security self-employment taxes on self-employment income up to $110,100.

Observation: The maximum savings for 2012 will be $2,202 (2% of $110,100) per taxpayer. If both spouses earn at least as much as the wage base, the maximum savings will be $4,404.

Source: RIA