(Bloomberg News) Payroll processors are warning that a two-month payroll tax-cut extension passed by the U.S. Senate would be difficult to implement.
Payroll companies can react quickly to a yearlong extension for the first paycheck of 2012 or adjust the second paycheck to correct problems, said Pete Isberg, president of the National Payroll Reporting Consortium, an industry group. Payroll providers underscore that they don't like a second consecutive year of December tax law changes or the Senate-backed two-month extension of the tax cut that could create unprecedented complications.
"Payroll people feel like their concerns are not heard at the congressional level sometimes," said Mike O'Toole, who oversees government relations at the American Payroll Association. "Or else, Congress wouldn't even consider something like a two-month extension that in the end is going to cost companies more money to pay for reprogramming systems."
The Treasury Department said it would help to make the two-month plan workable. "It is feasible to implement the bipartisan Senate bill, and the Treasury Department will work with employers to ensure the smoothest possible implementation," Jenni LeCompte, a department spokeswoman, said in an e-mail.
In a typical year, the 12.4 percent payroll tax that funds Social Security is split evenly between employers and employees. For 2011, in a tax law signed by President Barack Obama on Dec. 17, 2010, employees pay 4.2 percent while employers continue to pay 6.2 percent.
Wage Base Cap
The wage base for the tax is capped at a level adjusted annually for inflation. In 2012, the tax won't be assessed for wages exceeding $110,100.
Allowing the payroll tax cut to expire would hurt consumer spending and confidence, said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania.
"Congress would once again be placing the recovery at risk by playing the political games they seem to enjoy playing," he wrote in an e-mail yesterday.
Obama pushed to lower the tax rate on the employees' side to 3.1 percent for 2012 and expand a variation of the tax cut to employers.