On February 17, 2012, Congress approved the Middle Class Tax Relief and Job Creation Act of 2012. This legislation extends the 2% reduction in the employee portion of Federal Insurance Contributions Act (FICA) taxes in effect during 2011 and the first two months of 2012. The social security tax paid by employees would remain at 4.2% through December 31, 2012. President Obama is expected to sign the legislation into law.

The payroll tax reduction took effect in 2011 and reduced FICA taxes withheld from employee compensation. Before the reduction, FICA included a Medicare tax equal to 1.45% of covered wages, and a social security tax equal to 6.2% of covered wages up to the wage base limit for each employee. Effective for 2011, the social security tax paid by employees was reduced by two percentage points to 4.2% up to the 2011 wage base of $106,800.

Under the Temporary Payroll Tax Cut Continuation Act of 2011, which was enacted in December 2011, the reduced FICA tax rate was extended through February 29, 2012. The Middle Class Tax Relief and Job Creation Act extends this tax cut through December 31, 2012. It also extends unemployment benefits and prevents cuts in Medicare payments to doctors.