MEDIA RELEASE

Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012.

This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.

Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.

Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.

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 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).

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.

The IRS will issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision.

For most employers, the quarterly employment tax return for the quarter ending March 31, 2012 is due April 30, 2012.

AKAKA’S STATEMENT ON HOUSE AGREEMENT TO PASS SENATE’S BIPARTISAN PAYROLL TAX CUT

U.S. Senator Daniel K. Akaka (D-Hawaii) issued the following statement:

“In the end, the House Speaker did the right thing by agreeing to approve the bipartisan compromise the Senate overwhelmingly supported this past Saturday. This compromise prevents a tax hike on middle-class workers over the holidays, helps out-of-work Americans provide for their families, and preserves critical access to healthcare. This agreement puts American families before partisanship, and I hope it leads to better teamwork next year. When we return to Washington after the holidays we will need to resolve differences and pass a full-year extension that will save the average Hawaii family over $1,000 in taxes next year. I am hopeful that good-sense and compromise will prevail as we continue to guide the country back on track.”

REP. MAZIE HIRONO’S STATEMENT

“After pressure from the American people, both the House and Senate passed a bill that extends the payroll tax cut and unemployment benefits for the next two months. With just two days left before Christmas, 700,000 Hawaii workers can now enjoy the remainder of the holiday season without worrying that their taxes will go up starting New Year’s Day. This also means 3,000 people in the islands won’t see their unemployment benefits disappear in January.

“Unfortunately, this comes after a week of disappointments. Despite the Senate overwhelmingly passing this bipartisan legislation by an 89-10 vote over the weekend, action on this bill came to a halt. Sadly, at the last minute, the House Republican Majority decided to side-step the bill in an attempt to force the Senate to renegotiate. The Majority wanted the bill to include many poison pill provisions that would hurt our families, like requiring a high school diploma to receive unemployment benefits.

“Thankfully, today’s passage was the right decision for our families. We will still need to work quickly next month to pass a fair and sensible bill that extends the payroll tax cut and unemployment benefits through the end of the 2012.

“As the daughter of a single working mom, I know that policies such as the payroll tax cut and unemployment benefits provide needed support and can help to keep a family afloat during times of hardship. And, I know that failure to reach agreement to extend these benefits is unacceptable — to struggling families, to workers, and to our nation.

“In the New Year, it’s my hope that we can move beyond politics and the partisan games to extend the relief that our workers and their families deserve.

“It’s time to look towards the needs of our nation and of Hawaii’s people; and time to continue our fight to create jobs, encourage growth, and support a strong economic recovery.

“It’s time to move forward.”

STATEMENT FROM PRESIDENT BARACK OBAMA

Good afternoon —

Earlier this week, it looked like Congress would go home for the holidays without preventing a tax increase that would mean millions of American families would have about $40 less in each paycheck.

But then something pretty incredible happened.

It began when we asked everyone to show us how that missing $40 would affect them and their families. In a matter of hours thousands of vivid, powerful stories from Americans of all ages, all backgrounds, from every corner across the country were pouring in. For some, $40 means dinner out with a child who’s home for the holidays. For others it means a tank of gas or a charitable donation. In just two days, tens of thousands of Americans were making their voices heard.

You spoke up. Your voices made all the difference.

Thanks to you, Congress reached an agreement to extend the payroll tax cut. On top of that, vital unemployment insurance will continue for millions of Americans who are looking for work.

Yesterday I had the chance to meet a few of the folks who took to the web to make this happen.

We aren’t done fighting for the middle class. When Congress returns, they need to keep working to reach an agreement that will extend this tax cut and unemployment insurance for all of 2012 — without drama or delay.

That’s just the beginning of our work ahead in the new year to put more Americans back to work, restore middle-class security, and ensure that folks who work hard and play by the rules get a fair shot.

More than ever I’m confident that, together, those are goals we can achieve.

Thank you, Merry Christmas, and Happy Holidays,

President Barack Obama