Turn all the layers back on and deselect. Merge visible layers and save. Ok, now it's time to start working on Santa's Face. Add a new layer and move it under the merged layer. Use the selection tool with the shape set to ellise and draw an elongated ellipse.
Flood fill it with a flesh toned color.
Add a new layer and add the cutout with the same settings we used for his hat. Use the magic wand tool to move it and line it up with your hat. Delete any parts that are showing on the outside of your hat. Make a new layer and add the same cutout effects. Turn off the hat layer and merge visible.