Human Resources News & Insights

Congress weighs keeping payroll taxes lower

Democrats and Republicans appear to be in agreement: The 2% payroll tax break workers have been enjoying should be extended. The problem? They can’t come to terms on how to pay for it.

So far the divided Senate has shot down two bills that would’ve extended the payroll tax holiday, which slashes the percentage of wages workers pay into Social Security from 6.2% to 4.2%.

The first was a Republican-backed bill that would’ve extended the current 4.2% tax rate, while freezing discretionary government spending and cutting federal payroll to pay for the extension’s $100 billion price tag. It was rejected by a vote of 78 to 20.

The second bill, introduced by Senate Democrats, would’ve not only extended the tax break but reduced the tax further to 3.1%. And to pay for the tax break, the bill would’ve levied a 3.25% surtax on income over $1 million, a strategy opposed by Senate Republicans who say the surtax will hurt business owners and cost jobs. The bill was rejected by a vote of 51 to 49, falling 9 votes short of the 60 needed to proceed.

Outlook: Since both sides want to extend the tax break, which at its current rate of 4.2% saves the average worker about $900 in taxes, there’s a good chance a compromise will be reached to extend the tax holiday by year’s end.

The payroll tax is scheduled to revert back to the 6.2% rate on Jan. 1, 2012.

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