Payroll tax holiday for small businesses

(a)

In general

Subchapter C of chapter 21 of the Internal Revenue Code of 1986 (relating to Federal Insurance Contributions Act) is amended by redesignating section 3128 as section 3129 and by inserting after section 3127 the following new section:

3128.

Payroll tax holiday for small businesses during portion of 2009

(a)

Payroll taxes

In the case of an eligible small business, the rate of the taxes imposed by sections 3101(a) and 3111(a) shall be zero with respect to remuneration paid during the payroll tax holiday period, including for purposes of determining the rates of tax under sections 3201(a) and 3221(a) with respect to compensation paid during such period. (b)

Self-employment taxes

In the case of an eligible small business— (1)

In general

For purposes of the tax imposed by section 1401(a), the self-employment income of the taxpayer for the taxable year (determined without regard to this subsection) shall be reduced by the payroll tax holiday period income for such taxable year. (2)

Tax on employee representatives under the railroad retirement tax act

For purposes of the tax imposed by section 3211(a), the compensation of the taxpayer subject to tax under such section for the taxable year (determined without regard to this subsection) shall be reduced by the payroll tax holiday period income for such taxable year for purposes of applying so much of the rate of such tax as is determined by reference to the taxes imposed by sections 3101(a) and 3111(a). (3)

Payroll tax holiday period income

For purposes of this subsection, the payroll tax holiday period income for any taxable year is the amount equal to the applicable percentage of— (A)the self-employment income for such taxable year in the case of the tax imposed by section 1401(a), and (B)the compensation subject to tax under section 3211(a) in the case of the tax impose by section 3211(a). (4)

Applicable percentage

For purposes of paragraph (3), the applicable percentage is the percentage determined by dividing— (A)the number of days during the taxable year which are within the payroll tax holiday period, by (B)the number of days during the taxable year. (c)

Eligible small business; payroll tax holiday period

For purposes of this section— (1)

Eligible small business

(A)

In general

The term eligible small business means any person engaged in a trade or business if such person employed no more than 50 employees on the first day of the payroll tax holiday period. (B)

Special rules

For purposes of subparagraph (A)— (i)all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 taxpayer, and (ii)temporary lay-offs shall be disregarded. (2)

Payroll tax holiday period

The term payroll tax holiday period means the period— (A)after the last day of the month which includes the date of the enactment of this section, and (B)before January 1, 2010. (d)

Limitation on reduction in employer taxes

(1)

In general

If at the close of the payroll tax holiday period— (A)the aggregate reduction under this section in the employer taxes, exceeds (B)the aggregate increase in employee compensation or capital expenditures during the payroll tax holiday period as compared to the comparable period ending on the day before the payroll tax holiday period,

then the applicable employer tax (determined without regard to this subsection) for the first payroll period beginning after the payroll tax holiday period shall be increased by such excess.

(2)

Employer taxes

For purposes of subparagraph (A), the term employer taxes means— (A)the taxes imposed by sections 3111(a) and 3221(a), and (B)so much of the taxes imposed by sections 1401(a) and 3211(a) as does not exceed the tax determined at the rate imposed by section 3111(a). (e)

Trust funds held harmless

There are hereby appropriated (out of any money in the Treasury not otherwise appropriated) for each fiscal year to the trust funds under section 201 of the Social Security Act and the Social Security Equivalent Benefit Account under section 15A of the Railroad Retirement Act of 1974 (45 U.S.C. 231n–1) an amount equal to the reduction in the transfers to such fund for such fiscal year by reason of this section. (f)

Employer notification

The Secretary shall notify small business employers of the payroll tax holiday period in any manner the Secretary deems appropriate.

(b)

Conforming amendment

The table of sections for such subchapter C is amended by redesignating the item relating to section 3128 as relating to section 3129 and by inserting after the item relating to section 3127 the following new item:

Sec. 3128. Payroll tax holiday for small businesses during portion of 2009..

(c)

Effective date

(1)

In general

Except as provided in paragraph (2), the amendments made by this section shall apply to remuneration paid after the last day of the month which includes the date of the enactment of this Act. (2)

Self-employment taxes

So much of section 3128 of the Internal Revenue Code of 1986 (as added by this section) as relates to the taxes imposed by sections 1401(a) and 3211(a) shall apply to taxable years ending after such last day.