TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, February 20, 2012

Payroll Tax Extension Eliminates Recapture Tax on Those Earning > $110,100

Future of Capitalism, Payroll Extension Eliminates Recapture Provision, by Ira Stoll:

One of the little-noticed features of December's two-month extension of the payroll tax cut was a "recapture provision" that actually raised the income tax on those earning more that $110,100 a year. [See this IRS Press Release.] ... 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. ...

I was curious what would happen to this provision in the payroll tax cut extension legislation, so I looked at the text of the bill. Sure enough, there it is:

b) Conforming amendments.—Section 601 of such Act (26 U.S.C. 1401 note) is amended by striking subsections (f) and (g).

These aren't actually "conforming amendments" as the term is usually used in legislation to tidy up language. Subsections (f) and (g) were precisely the sections that added that recapture tax, and striking those subsections not only means the recapture provision won't be extended for the remaining ten months of 2012, but also, at least as I read it, that those who would have owed the tax for January and February now won't have to pay it for those two months, either. If this language striking subsections (f) and (g) survives Congress, it's a significant win for the pro-growth side.

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