Making Work Pay Credit that was available and applicable for the 2010 calendar and tax year, for tax returns that were filed in 2011 in no longer available for the 2011 and 2012 tax returns filers. This is after The Unemployment Insurance Reauthorization and Job Creation Act that was signed into law on December 17, 2010 failed to renew the Making Work Pay Credit.
However, the Payroll Tax Holiday, which was also in place in 2011, was introduced as a “replacement” tax break for the 2012 tax returns filers. Even though the Payroll Tax Holiday had been initially slated to expire in February 2012, it was extended to the end of the year. Under this plan, employees must have so far, realized some extra bucks on their paychecks each payday, and will remain so all through the year.
This has been the case due to the reduction of the payroll tax contributions for federal reasons by two percent for the employees. Social Security tax rate of 6.2% was slashed by 2% to 4.2%. However, the Payroll Tax Holiday did not affect the Medicare Contributions, as they remained intact. Also unaffected, is the cap for Social Security taxes (this cap is not available for Medicare tax.)
One significant difference between the Making Work Pay Credit and Payroll Tax Holiday lies in the requirements. While the former required taxpayers to file a Schedule M, the Payroll Tax Holiday has no such requirement; you don’t have to do anything. Any employee who receives the form W-2 is as good as having already enjoyed the credit’s benefit. More schedules or forms to fill are not requited in this case.
The case might be a bit different with self-employed individuals, as they have to do a little more work than their employed colleagues. The break is also applicable to self-employed taxpayers whose SE (Self-employed) tax is equally shed by two percent, the same way it was calculated on their 2011’s federal tax returns. The reduction has however, to be figured out by the individual, since it is calculated on Form 1040.
This might be a bit confusing, but Congress should shoulder the blame, as they are constantly terminating certain credits while drawing up new ones. It is obvious that these alterations cause taxpayers and even tax experts a lot of headache. It takes time and effort to figure out how most of the new tax breaks work, but it will be worth it when you are properly filing your taxes and either enjoying extra tax savings or avoiding an IRS audit.