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On December 23 Congress passed H.R. 3765, the “Temporary Payroll Tax Cut Continuation Act of 2011” (the TTCA). The bill was signed into law by President Obama shortly thereafter. The tax provisions of the TTCA consist of a two-month temporary extension of the payroll tax cut that’s in place for 2011, plus a parallel extension of a lower Self Employment Contributions Act (SECA) tax rate on self-employment income.

Before passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the FICA tax rate for employees and employers was 7.65% each—6.2% for OASDI and 1.45% for HI. Under the SECA tax, self-employment income of self-employed taxpayers was subject to a tax of 15.3%—12.4% for OASDI and 2.9% for HI. There is a maximum amount of compensation subject to the OASDI tax (the wage base), but no maximum for HI. (The wage base is $106,800 for 2011 and $110,100 for 2012.)

Temporary tax cut for 2011. For remuneration received during 2011, the 2010 Tax Relief Act reduced the employee OASDI tax rate under the FICA tax by two percentage points to 4.2%. Similarly, for self-employment income for tax years beginning in 2011, the Act reduced the OASDI tax rate under the SECA tax by two percentage points to 10.4% percent. As a result, for 2011, employees pay only 4.2% Social Security tax on wages up to $106,800 and self-employed individuals pay only 10.4% Social Security self-employment taxes on self-employment income up to $106,800.

New law. Under the TTCA, the reduced employee OASDI tax rate of 4.2% under the FICA tax, and the equivalent employee portion of the RRTA tax, is extended to apply to covered wages paid in the first two months of 2012.

The TTCA also provides for a recapture of any benefit a taxpayer may have received from the reduction in the OASDI tax rate for remuneration received during the first two months of 2012 in excess of $18,350 (i.e., two-twelfths of the 2012 wage base of $110,100). The recapture is accomplished by a tax equal to 2% of the amount of wages  received during the first two months of 2012 that exceed $18,350.

For tax years beginning in 2012, the TTCA provides that the OASDI rate for a self-employed individual remains at 10.4%, for self-employment income of up to $18,350.

The IRS, on December 23, posted an information release (IR-2011-124) announcing the payroll tax cut extension and describing the effect on taxpayers along with specifics about the recapture provision. The release can be viewed on the IRS website at,,id=251650,00.html?portlet=108.