A bill to extend the payroll tax holiday and to amend the Internal Revenue Code of 1986 to provide a temporary payroll increase tax credit for certain employees.

Summary: Middle Class & Small Business Tax Cut Act of 2012 - Amends the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 to extend through 2013 the reductions in employment and self-employment tax rates.

Amends the Internal Revenue Code to allow nongovernmental employers a credit against employment tax liability equal to 10% of the increase in any quarterly payroll over a payroll in a corresponding quarter in the previous calendar year. Limits the allowable amount of such credit to $500,000 for all quarters.

Directs the Commissioner of Internal Revenue to: (1) notify all employers required to withhold employment taxes of the enactment and applicability of the payroll increase tax credit, and (2) report to Congress on enforcement measures taken to prevent and penalize fraud related to such tax credit.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Middle Class & Small Business Tax 
Cut Act of 2012''.

SEC. 2. EXTENSION OF PAYROLL TAX REDUCTION.

    (a) In General.--Subsection (c) of section 601 of the Tax Relief, 
Unemployment Insurance Reauthorization, and Job Creation Act of 2010 is 
amended by striking ``and 2012'' and inserting ``, 2012, and 2013''.
    (b) Effective Date.--The amendments made by this section shall 
apply to remuneration received, and taxable years beginning, after 
December 31, 2012.

SEC. 3. EMPLOYER PAYROLL INCREASE CREDIT.

    (a) In General.--Subchapter B of chapter 65 of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new section:

``SEC. 6433. EMPLOYER PAYROLL INCREASE CREDITS.

    ``(a) In General.--Each qualified employer shall be treated as 
having made a payment against the tax imposed by section 3111(a) or 
section 3221(a), whichever is applicable, for each qualified quarter in 
an amount equal to the credit amount.
    ``(b) Credit Amount.--For purposes of this section, the credit 
amount with respect to any qualified quarter is equal to the 10 percent 
of the qualified payroll increase of such employer for such qualified 
quarter.
    ``(c) Dollar Limitation.--The total credit amount with respect to 
any employer shall not exceed $500,000 for all qualified quarters.
    ``(d) Qualified Employer.--For purposes of this section, the term 
`qualified employer' means any American employer other than the United 
States, any State, or any instrumentality thereof.
    ``(e) Qualified Payroll Increase.--For purposes of this section--
            ``(1) In general.--The term `qualified payroll increase' 
        with respect to any qualified quarter means the amount, if any, 
        by which a qualified employer's qualified payroll for such 
        quarter exceeds the qualified payroll for such quarter of the 
        calendar year preceding the year in which such qualified 
        quarter falls.
            ``(2) Qualified payroll.--The term `qualified payroll' 
        means the amount of all wages (within the meaning of section 
        3121(a)) paid or incurred by a qualified employer to the 
        employees of such employer, except that, with respect to each 
        such employee for any quarter of the employer, such wages shall 
        be taken into account only to the extent that such wages do not 
        exceed the contribution and benefit base as determined under 
        section 230 of the Social Security Act.
            ``(3) Railway labor.--In the case of remuneration subject 
        to the tax imposed by section 3221(a), paragraph (1) shall be 
        applied by substituting `all compensation (within the meaning 
        of section 3231(e))' for `all wages (within the meaning of 
        section 3121(a))'.
            ``(4) Special rule for large employers.--In the case of an 
        employer that employs 100 or more employees during the 
        qualified quarter, no qualified payroll increase shall be taken 
        into account for such qualified quarter unless the qualified 
        payroll increase with respect to such qualified quarter exceeds 
        3 percent of the qualified payroll for such quarter of the 
        calendar year preceding the year in which such qualified 
        quarter falls.
    ``(f) Qualified Quarter.--For purposes of this section, the term 
`qualified quarter' means--
            ``(1) the calendar quarter which includes the date of the 
        enactment of the Middle Class & Small Business Tax Cut Act of 
        2012, and
            ``(2) each of the 3 calendar quarters following such 
        quarter.
    ``(g) Definitions.--Except as provided in subsection (h)(1), any 
term used in this section which is also used in section 3111 has the 
same meaning as when used in such section.
    ``(h) Special Rules.--For purposes of this section--
            ``(1) Employee.--The term `employee' includes only 
        individuals who are citizens or lawful residents of the United 
        States who receive wages, remuneration, compensation, or tips 
        from an employer for work performed within a State or a 
        possession of the United States.
            ``(2) Maintenance of base employment requirement.--This 
        section shall not apply to any qualified employer for any 
        qualified quarter if the total number of employees of such 
        employer during such quarter is less than the total number of 
        such employees during the quarter preceding such quarter, 
        determined by not taking into account any employee who is a 
        seasonal employee during such preceding quarter.
            ``(3) Controlled groups.--All employers treated as a single 
        employer under section (a) or (b) of section 52 shall be 
        treated as a single employer for purposes of the dollar 
        limitation under subsection (c), except that any employer which 
        is not an American employer shall not be taken into account.
            ``(4) New employers.--
                    ``(A) In general.--In the case of a qualified 
                employer which comes into existence after the date of 
                the enactment of the Middle Class & Small Business Tax 
                Cut Act of 2012 and before January 1, 2014--
                            ``(i) the term `qualified quarter' means--
                                    ``(I) the first calendar quarter 
                                for which such qualified employer is in 
                                existence, and
                                    ``(II) each of the 3 quarters 
                                following such quarter,
                            ``(ii) the qualified payroll increase of 
                        such employer for the quarter described in 
                        clause (i)(I) shall be equal to the amount of 
                        the employer's qualified payroll for such 
                        quarter, and
                            ``(iii) the qualified payroll increase of 
                        such employer for any quarter described in 
                        clause (i)(II) shall be the amount, if any, by 
                        which the employer's qualified payroll for such 
                        quarter exceeds the qualified payroll of the 
                        quarter preceding such quarter.
                    ``(B) Transition rule.--
                            ``(i) In general.--In the case of a 
                        qualified employer which comes into existence--
                                    ``(I) after the last day of the 
                                calendar quarter which is 5 calendar 
                                quarters before the date of the 
                                enactment of the Middle Class & Small 
                                Business Tax Cut Act of 2012, and
                                    ``(II) before such date of 
                                enactment,
                        the qualified payroll increase of such employer 
                        for any transition quarter shall be the amount, 
                        if any, by which the employer's qualified 
                        payroll for such quarter exceeds the qualified 
                        payroll of the quarter preceding such quarter.
                            ``(ii) Transition quarter.--For purposes of 
                        clause (i), the term `transition quarter' means 
                        a qualified quarter with respect to which the 
                        qualified payroll increase cannot be determined 
                        under subsection (e)(1) solely because the 
                        employer was not in existence during such 
                        quarter of the calendar year preceding the year 
                        in which such qualified quarter falls.''.
    (b) Clerical Amendment.--The table of sections for subchapter B of 
chapter 65 of the Internal Revenue Code of 1986 is amended by adding at 
the end the following new item:

``Sec. 6433. Employer payroll increase credits.''.
    (c) Notification.--Not later than 30 days after the date of the 
enactment of this Act, the Commissioner of Internal Revenue shall 
notify all employers required to withhold employment taxes under 
chapter 21 or 22 of the Internal Revenue Code of 1986 of the enactment 
and applicability of section 6433 of the Internal Revenue Code of 1986, 
as added by this Act.
    (d) Investigation and Report on Enforcement Actions.--Not later 
than 6 months after the date of the enactment of this Act, and 
quarterly thereafter, the Commissioner of Internal Revenue shall submit 
a report to the Committee on Finance of the Senate and the Committee on 
Ways and Means of the House of Representatives on the enforcement 
measures taken to prevent and penalize fraud related to section 6433 of 
the Internal Revenue Code of 1986, including such information as--
            (1) general statistics related to the application of such 
        section,
            (2) cases of fraud, and
            (3) the status of investigatory and prosecutorial actions 
        related to such cases.
    (e) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply to calendar quarters beginning with the calendar quarter 
which includes the date of the enactment of this Act.