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2013-Budget-header

Extend the Payroll Tax Cut through 2012

Funds to pay Social Security benefits come from two sources, the Federal Insurance Contributions Act (FICA) imposed on workers and the Self Employment Contributions Act (SECA) imposed on people who run their own businesses. Workers and their employers each pay 6.2 percent of wages up to a maximum, $110,100 in 2012. Self-employed workers pay 12.4 percent of wages up to the same maximum, equal to the combined employee-employer rate.

The Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010 reduced both FICA and SECA tax rates by 2 percentage points for 2011 in order to increase workers’ take-home pay and thus stimulate the economy through higher consumer spending. In December 2011, Congress extended the rate cut for two additional months through February 2012.

In the 2013 budget, the president proposed further extending the rate cut through all of 2012 at an estimated cost of $94 billion in fiscal years 2012 and 2013. Congress subsequently enacted that extension in the "Middle Class Tax Relief and Job Creation Act of 2012."

Extension of the tax cut through 2012 will reduce taxes for nearly three-quarters of tax units by an average of about $770.* Average tax savings rise with income from an average of about $140 for tax units in the bottom quintile with workers to nearly $1,900 for those in the top quintile.

Distribution Tables

Ten-Month Extension the Payroll Tax Cut (March-December 2012)

2012 versus current law by cash income
2012 versus current law by cash income percentile
2012 versus current policy by cash income
2012 versus current policy by cash income percentile


Full-Year Extension the Payroll Tax Cut (through all of 2012)

2012 versus current law by cash income
2012 versus current law by cash income percentile
2012 versus current policy by cash income
2012 versus current policy by cash income percentile

Additional Resources

Tax Topics: Payroll Taxes


*Average tax savings for the full year will be about $920, ranging from $165 for tax units in the bottom quintile with workers to nearly $2,250 for those in the top quintile. 

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