Both the House and Senate passed a two-month extension of the payroll tax cut, unemployment benefits, and the “doc fix” for preserving the current Medicare reimbursement for physicians by unanimous consent on Friday morning, sending the measure to President Obama’s desk.

The bill represented a turnabout for the House Republican leadership, who had opposed the two-month extension of the 2-percentage-point cut in Social Security and medicaare withholding taxes as recently as Thursday morning (see Obama and McConnell Urge Action on Payroll Tax Cut and Boehner under Pressure on Payroll Tax Cut Extension). Speaker of the House John Boehner, R-Ohio, reversed course late in the day Thursday after Senate Republicans increased the pressure on him to agree to a compromise they had passed with Senate Democrats last Saturday.

The new measure includes some technical corrections to address the concerns of payroll processors and small businesses about how the two-month extension would work (see House Republicans to Offer 2-Month Payroll tax Cut Bill). It corrects a flaw in the Senate provision by allowing employers to withhold employee payroll taxes at the reduced rate (4.2 percent) on all wages paid during the two-month period, subject only to the full 2012 wage base ($110,100) and without regard to the new $18,350 cap on wages earned through the end of February. 

If an employee’s wages during the first two months of 2012 exceed $18,350 (two-twelfths of the wage base of $110,100), an amount equal to 2 percent of those excess wages would ultimately be recaptured on the worker’s individual tax return for 2012.  However, this rule would only apply if the payroll tax reduction is not extended for the remainder of 2012, and a conference committee is expected to convene soon in order to negotiate a full-year extension.

As a result of this modification to the Senate’s approach, employers would not have to comply with an unnecessary new burden and could instead devote their resources toward hiring new workers or increasing wages, according to information provided by a House Ways and Means Committee spokesperson.

The new bill also includes an agreement to work on a year-long extension of the payroll tax cut when lawmakers return from their holiday recess in January. It includes a provision in the Senate bill requiring President Obama to make a decision on the Keyston XL oil pipeline from Canada to Texas within 60 days.

Under the House fix, employers will be able to process and withhold payroll taxation under the same accounting structure that is currently in place.  No costly payroll systems or updates will be required. The Senate will now join the House in immediately appointing conferees to reach agreements in the weeks ahead on a full-year payroll tax extension.

President Obama plans to sign the legislation on Friday and join his family in Hawaii where they are spending their vacation.

“For the past several weeks, I’ve stated consistently that it was critical that Congress not go home without preventing a tax increase on 160 million working Americans,” he said in a statement Thursday. “Today, I congratulate members of Congress for ending the partisan stalemate by reaching an agreement that meets that test. Because of this agreement, every working American will keep his or her tax cut—about $1,000 for the average family. That’s about $40 in every paycheck. Vital unemployment insurance will continue for millions of Americans who are looking for work.  And when Congress returns, I urge them to keep working to reach an agreement that will extend this tax cut and unemployment insurance for all of 2012 without drama or delay. This is good news, just in time for the holidays. This is the right thing to do to strengthen our families, grow our economy, and create new jobs. This is real money that will make a real difference in people’s lives. And I want to thank every American who raised your voice to remind folks in this town what this debate was all about. It was about you. And today, your voices made all the difference.”

Many members of Congress have already left town for their own holiday breaks, but by passing the bill through unanimous consent, both chambers were able to avoid a roll call vote.

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