About That Two Month "Tax Holiday"...

Much like overeating at Christmas time, you'll be paying it back by dieting later this year.

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).

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.

I've avoided most of the discussion of the two month "Tax Holiday" fiasco, largely because I can't pretend I understand what's going on.  Let's see, the House GOP wants the holiday for a year, Obama wants the holiday for a year, but it's a great victory for Obama when Obama and the democratic Senate force the House to accept the holiday for only two months...  Nope, I still don't understand it. As Ace points out, it was a pretty strange hill for the House GOP to decide to die on. 

But clearly this add on tax is part of a move to change the nature of Social Security from an insurance plan, paid for by money specifically collected for Social Security, to a general welfare plan, with money coming from the general fund.  It was headed there anyway, now that the income for Social Security has fallen below expenditures.  They looked in the magic "Social Security Trust Fund Lock Box", but like a magicians chest, it had a false bottom, and all the money was gone.

Now, what happens if (really when) the "holiday" on Social Security is extended through 2012?  Will they bump up the "recapture tax" and collect it as regular income taxes?

The Lord Government giveth and the Lord Government taketh away; Blessed be the name of the Lord Government.