2% Payroll Cut Extended and an Update on the Inheritance Tax

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by Felicia Rupp and Marie Jett, CPA | Team Members of the Tax Services Group

On February 17, Congress passed H.R. 3630, the “Middle Class Tax Relief and Job Creation Act of 2012” (the Act) and sent it to the President for his signature and he is expected to sign the bill promptly.

The Act extends the 2% payroll tax cut through the end of 2012. The bill includes these three major provisions that affect payroll taxes, unemployment insurance, and Medicare:

  1. Payroll tax cuts – there is a 2% reduction from 6.2% to 4.2% in the payroll tax for employees. For most taxpayers, this is a savings of $1,000 for 2012.
  2. Unemployment Insurance – for most states, the unemployment insurance may be extended to a maximum of 63 weeks. However, states with unemployment rates of 9% may be able to extend unemployment benefits for up to 73 weeks.
  3. Medicare – the increased reimbursement rate for physicians known as the “Doc Fix” is enacted.

Indiana House Committee Clears Inheritance Tax Bill
An Indiana House Committee has approved a plan to phase out the state’s inheritance tax.
State Senator Brandt Hershman (R-7) is the sponsor of the bill. He says the tax is a "deterrent" to keeping retirees and entrepreneurs in Indiana. The bill now goes to the full House.