The Wall Street Journal
By: Laura Saunders
December 16, 2010
As the House takes up a bipartisan tax bill passed by the Senate Wednesday, payroll processors say it could be several weeks before millions of workers see the tax-code changes reflected in their paychecks.
The House could vote on the measure as early as Thursday. "If Congress doesn't get it done this week, it could take three paychecks for workers to see their correct take-home pay for 2011," said Dennis Danilewicz, head of payroll at New York University's Langone Medical Center.
All tax-code changes must be programmed into payroll systems and carefully tested, a process that ordinarily takes at least two weeks.
The Internal Revenue Service typically publishes the tax-withholding tables on which take-home pay is based in mid-November, but this year it has had to wait for lawmakers to come to a decision on taxes.
Although 2011 withholding tables will be similar to those for 2010 if Congress extends Bush-era rates for all taxpayers, payroll processors say it will be harder to implement the proposed temporary 2% Social Security tax cut for wage-earners.
"We've never had this kind of payroll cut before. It's outside the box, and we have to make sure the software can handle it," said Jim Bolek of Basic Payrolls Plus in Grand Rapids, Mich., which processes paychecks for about 9,000 employees of small and midsize businesses.
Frank Fiorille, director of risk management for Paychex, which prepares payrolls affecting 9 million workers, agrees: "There could have to be catch-ups, especially for companies that run payroll early."
Tax Deal Steams Closer to Approval
.The amounts in question would differ depending on income. A worker earning $106,800 or more--the maximum that Social Security tax applies to--will save $2,136, or about $82 for every two-week pay period.
Few payroll experts expect the worst-case outcome from their perspective: lawmakers adjourning without passing a tax-law modification, only to take it up again early next year.
That could bring a temporary expiration of the tax cuts and force large withholding increases in January, especially on low- and middle-income workers.
It would also cause major disruptions in next year's tax-filing season because the IRS, on the advice of congressional tax writers, has already programmed its computers to reflect the extension of important provisions set to expire at the end of the year.
IRS Commissioner Douglas Shulman recently wrote to the leaders of congressional tax-writing committees warning of "service disruptions and/or delayed refunds for tens of millions" of taxpayers if lawmakers don't resolve 2010 tax issues before the year is up.
Both the 2007 and 2008 filing seasons suffered disruptions because Congress enacted tax legislation late in the year. To cope with this year's strain, the agency has canceled holiday leaves for some workers, according to people familiar with the situation.
An IRS spokesman declined to comment.
Payroll professionals say the holidays are always busy with year-end bookkeeping, but that this year's tax wrangling is making things far worse than usual.
"I may have to work Christmas day," said Jodi Parsons, a payroll specialist with IFMC, a nonprofit health-care management consulting firm near Des Moines, Iowa.
Mary Jo Harling, a payroll consultant in the Detroit area, said she was worried about the impact on a family trip to Walt Disney World in Florida.
"I'm afraid I'll be talking to clients on the phone on Christmas day while my family is talking to Mickey Mouse," she said.
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