Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2% of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).If you make more than $110,100 per year, the amount you make above that is going to be taxed at an additional 2% on your 2012 Federal income taxes. At the current time, this applies only for the 2 months of that the temporary Social Security Payroll Tax reduction is in place, but as the IRS notes, they will likely amend this to be in effect for the full calendar year if the temporary reduction is extended for the full calendar year.
This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision.
If one earns more than $220,200 per year or more, then you're going to be paying more to the IRS than you will get as a benefit from the temporary reduction of one's Social Security Payroll Tax.
Of course, there are still those who insist that the Temporary Social Security Payroll Tax reduction, put in place originally in 2009 and extended into 2010, 2011, and now the first 2 months of 2012, has a stimulative effect on the economy.
On the PBS show, Inside Washington, Bloomberg's Margaret Carlson makes this very claim last night. Unfortunately for the liberal Carlson, Charles Krauthammer was also on the show - and he took her to task for her vapid claim. As Newsbusters reported on this, Noel Sheppard also adds more facts to the case that a temporary tax reduction that adds $1000 to the takehome pay of the average worker does nothing to stimulate the economy...
Having grown by 3.0 percent in 2010, the Gross Domestic Product with a payroll tax holiday slowed to 0.4 percent, 1.3 percent, and 1.8 percent in the first three quarters of 2011 respectively.
To suggest this short-term cut had any positive impact on the economy belies the facts.
As for employment, through November, less than 1.5 million non-farm jobs have been produced since this payroll tax holiday took effect, which is far less than is needed to just keep up with population growth.
As for the Bush tax cuts, following the implementation of the second round in May 2003, the GDP grew by 2.5 percent followed by 3.5 percent in 2004, 3.1 percent in 2005, and 2.7 percent in 2006.
In the four years following the second Bush tax cut, roughly eight million jobs were created bringing the unemployment rate down to 4.4 percent.