MIDDLE CLASS TAX RELIEF AND JOB CREATION ACT OF 2012

The Middle Class Tax Relief and Job Creation Act of 2012 (the “Act”)
was signed into law on February 22, 2012. The legislation extends, through the
end of 2012, the two percentage point payroll tax cut for employees and self-employed
individuals that had been in place for 2011 and the first two months of 2012

Background

As part of an economic
stimulus law, the Social Security payroll tax for 2011 was reduced by two
percentage points, from 6.2% to 4.2%. A similar reduction was applied to the
self-employment tax for self-employed individuals. At the end of last year, those
payroll and self-employment tax cuts were extended for two months, through
February 2012.

Payroll Tax Cut Extended
Through 2012

For the balance of 2012 only,
employees will continue to pay a 4.2% Social Security
tax rate on wages up to $110,100 (the 2012 Social Security Wage Base).
Similarly, the Act reduces the tax rate for the Social Security portion of self-employment
tax on self-employment net earnings up to $110,100.

Therefore, the maximum savings
for employees and self-employed individuals in 2012 will be $2,202 (i.e., 2% of
$110,100). For spouses who both earn at least as much as the Social Security
Wage Base in 2012, the maximum savings will be $4,404.

Note that employers continue
to pay the full employer portion of Social Security taxes for their
employees.

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