Jobs Proposal and Deficit Reduction Plan
Update: November 21, 2011: Legislation, H.R. 674, defining tax credits for hiring veterans and a repeal of the 3 percent federal contractor withholding was signed into law by President Obama on November 21, 2011. The legislation provides tax credits for hiring unemployed veterans, including those with service-related disabilities, and repeals 3 percent withholding on federal contractors set to take effect in 2013.
Also on November 21, the Congressional Deficit Reduction "Supercommittee" that was tasked to find ways to reduce the deficit announced that they were unable to reach an agreement.
Proposed to Congress on September 12, 2011, the jobs proposal and deficit reduction plan aims to cut the federal deficit by $3.2 trillion over the next 10 years and includes nearly $1.5 trillion in revenue provisions. Some of these provisions could potentially affect your business by increasing taxes on high-income individuals, tightening international tax rules and reversing certain longstanding tax accounting "loopholes".
On October 11, the Senate failed to pass the jobs proposal and deficit reduction plan. However, the President is now expected to break the bill's key components into stand-alone components, including payroll tax aspects, which are of particular interest to Paychex.
NOTE: The Jobs Proposal and Deficit Reduction Plan has not yet been signed into law. Key components, several with potential impact on Paychex' clients, may be voted on separately.
This information summarizes the proposed legislation as it currently stands. The following components may change at any time, making it difficult for Paychex to predict the eventual impact of the legislation. We will continue monitoring the Jobs Proposal and Deficit Reduction Plan and will update this web page as clarifications are made.
Highlights of the Jobs Proposal
Temporary Payroll Tax Cut for Employers and Employees
- The Social Security tax rate would be reduced for both employers and employees from 6.2 percent to 3.1 percent in 2012.
- The employer reduction would be applicable to the first 5 million dollars of
employers wages paid.
Temporary Employer Tax Credit for Increased Payroll
- Beginning in 4Q2011 and all of 2012 employers would receive a tax credit for increasing their Social Security wages from the prior year. This increase can be attributed to new hires, increased wages or a combination of both. This credit, combined with the Temporary Payroll Tax Cut listed above, would essentially make the employer's Social Security tax rate 0 percent.
- Beginning October 1, 2011 through December 31, 2011, the 6.2 percent credit would be available on the excess amount of increased wages in comparison to wages paid from the same period of the prior year (4Q2010). The tax credit would be available on up to $12.5 million of an employer's increased wages.
- For January 1, 2012 through December 31, 2012, the 6.2 percent credit would be available on the excess amount of increased wages in comparison to the wages paid from the same period of the 2011 calendar year minus any amounts attributable to the temporary payroll tax cut. The tax credit would be available on up to $50 million of an employer's increased wages./li>
- New employers would receive the tax credit on 80 percent of their Social Security Wages, if they had zero wages during the corresponding time period.
Veteran Hiring Tax Credits
NOTE: The DOL and IRS will need to issue updated guidance to administer the various provisions that remain in the final piece of legislation. We will be monitoring for IRS and DOL guidance and will update this web page as clarifications are made.
Highlights of the Deficit Reduction Proposal
Expiration of Bush Era Tax Rates
- Beginning with tax year 2013, households with income above $250,000 would see an increase in their tax brackets from 33 percent to 36 percent.
- Individuals with income above $200,000 would see an increase in their tax brackets from 35 percent to 39.6 percent.
Unemployment Insurance Surtax would be made permanent.
The temporary 0.2 percent surtax under the Federal Unemployment Tax Act (FUTA) was not extended with respect to wages paid after June 30, 2011. Under this proposal the 0.2 percent surtax would be reinstated and the FUTA tax rate would again be 6.2 percent.
Are You Ready for What's Next?
Every year, Paychex monitors thousands of changes in local, state, and federal laws that affect our more than 550,000 U.S. business clients. You can be assured that we will continue to take care of the administrative details — so you can focus on running your business.
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