Middle-class taxpayers will be happy to know that President Obama and Congress have agreed to extend the payroll tax cut until the end of 2012.

The payroll tax cut actually reduces the amount of tax that taxpayers pay toward social security. Instead of paying the normal 6.2% tax rate, taxpayers will get a 2% cut and pay only 4.2% of their earnings toward social security.

The Internal Revenue Service today released revised Form 941 enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.

On February 23, the Internal Revenue Service issues a press release that states, “Under the Middle Class Tax Relief and Job Creation Act of 2012, enacted yesterday, workers will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, enacted Dec. 23.”

Are you self-employed and feeling left out? Don’t worry there’s good news for you too. According to the same IRS news release “Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.”

The Middle Class Tax Relief and Job Creation Act, also appeals the two-percent recapture tax that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut.

The IRS will continue to provide updates to the newly-extended payroll tax cut through press releases on the IRS website.

The payroll tax cut extension means more money for middle-class taxpayers.

I’m letting everyone know right now! I’m cheating on my income tax this tax season – and you know why? I need the money.

The IRS won’t know that I’m cheating.  I’ll report more charitable contributions than I really did. I’ll claim deductions for the 10 new suits I bought, deduct the mileage for the 100,000 miles I drove, and claim depreciation on my home office equipment, all related to my fake home business.  Heck, I plan on claiming old Aunt Julie as a dependent too!

Just think, the additional few hundred bucks I get will come in handy when I have to pay a tax attorney to keep me out of jail.

That’s if I get caught?

Of course I am only kidding about cheating the IRS.  I would never consider defrauding them in any way. It’s just not worth it!  And I strongly suggest to all you taxpayers, don’t even think about cheating on your taxes.  Here’s why…

The Internal Revenue Service has stepped up it’s compliance with state of the art computer software, and they aren’t targeting the wealthiest taxpayers anymore.  Not only that, as more and more tax returns are filed electronically, the IRS has more time to poke around and review tax returns that deviate from normal computer tax models.  Another great reason not to cheat on your taxes is that the IRS has experienced significant revenue shortfalls over the last few years.  They are putting an emphasis on recovering past due tax debts and squeezing every penny out of taxpayers.

So avoid inflating tax deductions even a little bit, the last thing you want is a tax audit.  If the IRS accuses you of tax fraud, the consequences could be extreme.  If you are found guilty you will have to pay the amount, plus penalties, plus possible interest charges too.  In serious cases, you can be put in jail.  If you’re smart, you’ll want a tax attorney to represent you. You don’t want to know how much that will cost you.

Do yourself a favor, and avoid the temptation to cheat on your tax return.  Better yet, pay for a reputable tax preparer to calculate your tax return for you.  It’s best if the IRS doesn’t know your name!

It appears the House and Senate have reached agreement to extend the payroll tax holiday.  Along with the agreement to extend the two percent tax cut, Congress seems to have partisan agreement on extending unemployment benefits.

The payroll tax holiday, as it is called, is set to expire at the end of this month – February 2012.  The payroll tax holiday saves taxpayers approximately $80 a month.  Though an extra eighty dollars a month doesn’t seem like much, it is significant for many lower and middle-class families.

What will it cost to extend the payroll tax holiday and unemployment benefits?  Experts estimate that extending unemployment benefits alone will cost around $100 billion.

This short term relief will have long term effects.  We will have to borrow instead of generating tax revenue. This results in less capital to put toward job creation initiatives. It’s a double-edged sword. Short term fiscal relief for the middle-class and unemployed, but long term payback by all taxpayers for the effort.