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Obama Proposes Cuts to Payroll Taxes for 2012

President Obama’s American Jobs Act, which he discussed in a September 8, 2011 speech to Congress, contains several provisions for tax relief . Provisions include cuts to social security payroll taxes for employers and employees in 2012.  Under this Act, employers would pay 3.1 percent up to the first $5 million they pay in wages.  In 2011, they pay 6.2% on the first $106,800 of wages to each employee.  In addition, employees would have their payroll taxes cut by 1/2.  Thus, employers will have less of a burden when paying employees and employees will see less payroll taxes on their paychecks.  Finally, the Act completely eliminate payroll taxes for companies that increase their payroll by up to $50 million.

I have not had the opportunity to review the Act in detail, but I am still unclear about a few points.  First, I presume, but I am not sure, that only social security tax, and not medicare tax, of employees will be cut.  Second, in recent years and as under current law for 2012, employees pay 6.2 percent on the first $106,800 of wages.  In 2011, they pay 4.2 percent.  Thus, I am not sure whether employees would pay 3.1 percent (1/2 of 6.2 percent) or 2.1 percent (1/2 of 4.2 percent).  Finally, I am unsure whether these cuts would apply to earnings of self employed individuals and partners.

 

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