The payroll tax cut extension is being paid for by increases in fees associated with home mortgages. That’s the story making the rounds these days. I’ve been asked about it a number of times, starting with a piece from CBS News from February of this year that was posted on my Facebook page with the comment:

I have to ask: With all the polemic about extending the payroll tax cut and how to pay for it, how did we all miss this?

When I saw the comment, I had to scratch my head. I’ve read the payroll tax cut legislation (downloads as a pdf) and I didn’t recall a word about mortgages paying for the payroll tax cut. But the story continues to be circulated by bona fide news agencies. So I did some digging. And here’s what really happened…

When the payroll tax cut extensions came up for consideration at the end of last year, Republicans were adamant that there would be no extensions without offsets to pay for them. All sorts of ideas were bandied about, including a Democratic attempt to impose an income tax surcharge on millionaires and the Republican counter to freeze pay for federal employees. Neither of those suggestions made the “final” cut passed in December which extended the payroll tax cuts for two months. What was included, however, as a means to pay for the extensions were a few taxes and fees snuck in at the last minute, including a “recapture” tax on high income taxpayers and a new fee on mortgages for home buyers.

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