Congress Passes 2-Month Extension Of Payroll Tax Reduction - Income Tax

US House of Representatives Accedes to US Senate's 2‑Month Extension, With Agreement to Negotiate a 1‑Year Extension

On December 23, 2012, both the US House of Representatives and the US Senate approved H.R. 3765, the "Temporary Payroll Tax Cut Continuation Act of 2011." The bill is identical to H.R. 3630, as amended by the US Senate on December 17, 2012, with a modification to facilitate businesses' implementation of the 2-month extension of the payroll tax reduction. President Obama signed the bill later that day, enacting it into law.

The compromise bill is a temporary resolution to the ongoing dispute in Congress as to how to "pay" for extension of the expiring payroll tax reduction, unemployment insurance, delay in Medicare physician payment rates, and other provisions. By limiting the extension to two months, the bill omits controversial offsets included in earlier bills, but the bill's brief extension and limited scope mean that Congress must resume consideration of the expiring and expired provisions in early 2012.

What is in the Bill

The bill includes 2-month extensions of several provisions:

The temporary payroll tax reduction
Federally funded benefits under the Emergency Unemployment Compensation and the Extended Benefit programs
The delay in the otherwise applicable 27.4 percent cut in Medicare physician payment rates scheduled to begin on January 1, 2012, and extension of associated Medicare-related provisions
The Temporary Assistance for Needy Families program

The bill also includes three other significant provisions:

Keystone Pipeline: The bill requires the President to issue a permit for the Keystone XL pipeline unless he determines that the pipeline would not serve the national interest.
GSE Guarantee Fees: The bill increases guarantee fees charged by Fannie Mae and Freddie Mac.
FHA Fees: The bill increases premium fees charged by the Federal Housing Administration to conform to the new GSE guarantee fees.

What is Not in the Bill

The following tax provisions were not included in the final bill:

Expansion and one-year extension of 100% bonus depreciation
Extension of the so-called AMT patch
Extension of the so-called tax "extenders" which are traditionally extended on a 1- or 2-year basis. A list of tax provisions scheduled to expire at the end of 2011 is provided below.
Surtax on incomes in excess of $1 million
President Obama's proposal to expand the temporary payroll tax reduction
President Obama's proposal to provide a temporary tax credit for increased payroll
Revenue raisers President Obama proposed in his original bill: the 28% limitation on certain deductions and exclusions, the proposed changes to the taxation of carried interest, slower depreciation for corporate jets, and changes to the taxation of oil and gas income
The change in eligibility for the Additional Child Care Credit in the original House-passed bill
Repeal of certain timing shifts of corporate estimated tax payments in the original House-passed bill

Most of the provisions included in the original House-passed version of H.R. 3630 did not survive the final package:

The delay in the EPA's issuance of regulations that govern emissions of mercury and other hazardous air pollutants from boilers and incinerators (the "Boiler MACT rules")
Flood insurance reform
Spectrum auction authority
Provisions to prevent Social Security overpayments
Provisions to prevent unemployment and Supplemental Nutrition Assistance program benefits for millionaires
Provisions to reform and modify the federal employee retirement system
Pay freeze for civilian federal employees
Increase in Medicare premiums for high income beneficiaries

Tax Provisions Scheduled to Expire in 2011

A. Provisions in "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010"
Provision	Internal Revenue Code ("IRC") or Public Law Cite	Expiration Date¹
Payroll Tax Reduction	Section 601 of P.L. 111-312	Extended until February 29, 2012
100% Bonus Depreciation	IRC section 169(k)(5)	Expires at end of 2011

B. AMT "patch"
Provision	Internal Revenue Code ("IRC") or Public Law Cite	Expiration Date¹
AMT "patch"	IRC sections 26(a)(2) and 55(d)(1)	Expires at end of 2011

C. "Extenders"
Provision	Internal Revenue Code ("IRC") or Public Law Cite	Expiration Date¹
Credit for certain nonbusiness energy property	IRC section 25C(g)	Expires at end of 2011
Credit for electric drive motorcycles, three-wheeled vehicles, and low-speed vehicles	IRC section 30(f)	Expires at end of 2011
Conversion credit for plug-in electric vehicles	IRC section 30B(i)(4)	Expires at end of 2011
Alternative fuel vehicle refueling property (non-hydrogen refueling property)	IRC section 30C(g)(2)	Expires at end of 2011
Expansion of adoption credit and adoption assistance programs	IRC sections 36C and 137 and section 10909(c) of P.L. 111-148	Expires at end of 2011
Incentives for alcohol fuels	IRC sections 40(e)(1)(A), (h)(1), and (h)(2) and 6427(e)(6)(A)	Expires at end of 2011
Incentives for biodiesel and renewable diesel	IRC sections 40A, 6426(c)(6), and 6427(e)(6)(B)	Expires at end of 2011
Research and experimentation tax credit	IRC section 41(h)(1)(B)	Expires at end of 2011
Placed-in-service date for facilities eligible to claim the refined coal production credit (excluding steel industry fuel)	IRC section 45(d)(8)	Expires at end of 2011
Indian employment tax credit	IRC section 45A(f)	Expires at end of 2011
New markets tax credit	IRC section 45D(f)(1)	Expires at end of 2011
Credit for certain expenditures for maintaining railroad tracks	IRC section 45G(f)	Expires at end of 2011
Credit for construction of new energy efficient homes	IRC section 45L(g)	Expires at end of 2011
Credit for energy efficient appliances	IRC section 45M(b)	Expires at end of 2011
Mine rescue team training credit	IRC section 45N	Expires at end of 2011
Employer wage credit for activated military reservists	IRC section 45P	Expires at end of 2011
Grants for specified energy property in lieu of tax credits	IRC section 48(d) and section 1603 of P.L. 111-5	Expires at end of 2011
Work opportunity tax credit	IRC section 51(c)(4)	Expires at end of 2011
Allocation of bond limitation on Qualified Zone Academy Bonds	IRC section 54E(c)(1)	Expires at end of 2011
Deduction for certain expenses of elementary and secondary school teachers	IRC section 62(a)(2)(D)	Expires at end of 2011
Parity for exclusion for employer-provided mass transit and parking benefits	IRC section 132(f)	Expires at end of 2011
Treatment of military basic housing allowances under low-income housing credit	IRC section 142(d)	Expires at end of 2011
Deduction for mortgage insurance premiums	IRC section 163(h)(3)	Expires at end of 2011
Deduction for State and local general sales taxes	IRC section 164(b)(5)	Expires at end of 2011
15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements	IRC sections 168(e)(3)(E), (e)(7)(A)(i), and (e)(8)	Expires at end of 2011
7-year recovery period for motorsports entertainment complexes	IRC section 168(i)(15)	Expires at end of 2011
Accelerated depreciation for business property on an Indian reservation	IRC section 168(j)(8)	Expires at end of 2011
Special rules for contributions of capital gain real property made for conservation purposes	IRC sections 170(b)(1)(E) and (b)(2)(B)	Expires at end of 2011
Enhanced charitable deduction for contributions of food inventory	IRC section 170(e)(3)(C)	Expires at end of 2011
Enhanced charitable deduction for contributions of book inventories to public schools	IRC section 170(e)(3)(D)	Expires at end of 2011
Enhanced charitable deduction for corporate contributions of computer equipment for educational purposes	IRC section 170(e)(6)(G)	Expires at end of 2011
Increase in expensing to $500,000/$2,000,000 and expansion of definition of section 179 property	IRC sections 179(b)(1), (b)(2), and (f)	Expires at end of 2011
Election to expense advanced mine safety equipment	IRC section 179E(a)	Expires at end of 2011
Special expensing rules for certain film and television productions	IRC section 181(f)	Expires at end of 2011
Expensing of "brownfields" environmental remediation costs	IRC section 198(h)	Expires at end of 2011
Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico	IRC section 199(d)(8)	Expires at end of 2011
Above-the-line deduction for qualified tuition and related expenses	IRC section 222(e)	Expires at end of 2011
Tax-free distributions from individual retirement plans for charitable purposes	IRC section 408(d)(8)	Expires at end of 2011
Special rule for sales or dispositions to implement FERC or State electric restructuring policy	IRC section 451(i)	Expires at end of 2011
Modification of tax treatment of certain payments to controlling exempt organizations	IRC section 512(b)(13)(E)(iv)	Expires at end of 2011
Suspension of 100 percent-of-net-income limitation on percentage depletion for oil and gas from marginal wells	IRC section 613A(c)(6)(H)(ii)	Expires at end of 2011
Treatment of certain dividends of RICs	IRC sections 871(k)(1)(C) and (k)(2)(C) and 881(e)(1)(A) and (e)(2)	Expires at end of 2011
RIC qualified investment entity treatment under FIRPTA	IRC section 897(h)(4)	Expires at end of 2011
Exceptions under subpart F for active financing income	IRC sections 953(e)(10) and 954(h)(9)	Expires at end of 2011
Look-through treatment of payments between CFCs under the foreign personal holding company rules	IRC section 954(c)(6)	Expires at end of 2011
100% exclusion for qualified small business stock	IRC section 1202(a)(4)	Expires at end of 2011
Basis adjustment to stock of S corporations making charitable contributions of property	IRC section 1367(a)	Expires at end of 2011
Reduction in S corporation recognition period for built-in gains tax	IRC section 1374(d)(7)	Expires at end of 2011
Empowerment zone tax incentives	IRC sections 1391, 1394, 1396, 1397A, and 1397B	Expires at end of 2011
Tax incentives for investment in the District of Columbia	IRC sections 1400, 1400A, 1400B, and 1400C	Expires at end of 2011
Estate tax look-through for certain RIC stock held by nonresidents	IRC section 2105(d)	Expires at end of 2011
Disclosure of prisoner return information to certain prison officials	IRC section 6103(k)(10)	Expires at end of 2011
Incentives for alternative fuel and alternative fuel mixtures (other than liquefied hydrogen)	IRC sections 6426(d)(5) and (e)(3) and 6427(e)(6)(C)	Expires at end of 2011
Temporary increase in limit on cover over of rum excise tax revenues (from $10.50 to $13.25 per proof gallon) to Puerto Rico and the Virgin Islands	IRC section 7652(f)	Expires at end of 2011
Economic development credit for American Samoa	Section 119 of P.L.109-432	Expires at end of 2011

D. Expiring Disaster Relief
Provision	Internal Revenue Code ("IRC") or Public Law Cite	Expiration Date¹
New York Liberty Zone tax-exempt bond financing	IRC section 1400L(d)(2)(D)	Expires at end of 2011
Gulf Opportunity Zone provisions	IRC sections 1400N(a), (c), (d)(6), and (h)	Expires at end of 2011
Increase in rehabilitation credit for areas damaged by 2008 Midwestern severe storms, tornados and flooding	Section 702 of Division C of P.L. 110-343	Expires at end of 2011

Footnote

1. Please note that some provisions apply on a taxable year basis and will therefore have a different expiration date for taxpayers that use a fiscal year other than the calendar year.

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