In the closing days of 2011, Congress passed tax legislation that temporarily extended a payroll tax cut, but did not extend two important depreciation incentives – a lack of action that will be important as taxpayers plan their income and deductions for 2012.
For 2011, Congress reduced by 2 percent the employee share of the Social Security tax and the self-employment tax rates, hoping to stimulate consumer spending.
However, when it came time to extend this cut for 2012, Congress could not agree on how to pay for a one-year extension. So, the 2 percent waiver of Social Security tax was effective through Feb. 29, 2012.
In February 2012, Congress finally agreed to extend the payroll tax cut through the rest of the year, and President Obama signed this extension into law on Feb. 22, 2012.