President Sends Job Bill to Congress; Proposes Extension of Payroll Tax Relief and Unemployment Benefits
September 26, 2011 - NORTON, MA - On September 12, 2011, President Obama sent the American Jobs Act of 2011 to Congress. While the proposal covers several areas, the folllowing is a summary of how Social Security and Unemployment Insurance related items would be affected should Congress pass this latest piece of legislation.
Payroll tax reduction. The existing temporary reduction in payroll taxes established in 2011 would be extended and expanded into 2012. The proposal would:
- Further reduce the Social Security portion of the employee’s payroll tax during 2011 from 4.2% to 3.1%. Currently SUB-Pay Plan participants are gaining an additional 5.65% per payment in FICA tax savings (4.2% from Social Security and 1.45% from Medicare). Note that payments made to separated employees through a SUB-Pay Plan will continue to be exempt from FICA taxes;
- Add a new reduction in the portion of Social Security tax that is paid by employers from 6.2% to 3.1%. The employer reduction applies to up to $5 million paid beginning January 1, 2012. Payments made using a SUB-Pay Plan will continue to be exempt from FICA, FUTA and SUTA taxes for the employer.
Temporary tax credit. For the last quarter of 2011, and for calendar year 2012, the bill would provide a payroll tax credit that fully offsets the employer’s Social Security tax that otherwise would apply to increases in wages from the corresponding period of the prior year. For example, if the employer made payments subject to the Social Security tax of $5 million in 2011 and $6 million in 2012, the credit to which the employer would be entitled would eliminate the employer's portion of Social Security taxes on the increased $1 million. With the use of a SUB-Pay Plan, the employer receives the FICA tax savings immediately on payments made to its separated employees rather than having to wait for a tax credit.
Unemployment Insurance (“UI”). Under past legislation detailed in the Unemployment Compensation Act of 2010, the temporary Emergency Unemployment Compensation (“EUC”) and Extended Benefit (“EB”) provisions phased out in January 2012 and meant approximately six million unemployed workers were expected to lose their UI benefits by the end of 2011. The proposal would:
- Further extend the application to the EUC program, which provides up to 53 weeks of federally-funded extended UI benefits in certain states would be extended from January 3, 2012 to January 3, 2013. The period during which individuals may claim and be paid EUC would be extended from ending June 8, 2012 to June 8, 2013;
- Further extension of the 100% federal funding for the EB program, which provides up to an additional 13 to 20 weeks of UI benefits in certain states. The state option to continue EB payments would be extended from January 4, 2012 to January 4, 2013. The period during which individuals may claim and be paid EUC would be extended from ending June 9, 2012 to June 9, 2013.
We will continue to advise our clients of this pending legislation and how it affects their SUB-Pay Plan in future bulletins.
About Total Management Solutions
Total Management Solutions has pioneered the next generation of corporate severance solutions known as Severance 2.0. These custom solutions can be implemented within 3-4 weeks. TMS provides a dedicated client services team for every corporation with support services available to the separated employees who have any questions about their transition benefit plan. This dedicated TMS Client Services team is staffed with experienced professionals who know first-hand what separated employees are experiencing during reductions-in-force. This team helps ensure that the separated employee population is cared for and treated with the utmost respect, understanding and compassion while providing companies with more effectiveness, efficiency, and empathy; and less hassles, costs, and risks.