On Dec. 13, the House of Representatives passed a bill to extend the expiring 4.2 percent rate for all of 2012. For an individual earning $50,000 in 2012, the savings would amount to $1,000 over the course of the year, compared with the regular 6.2 percent tax.

A Seamless Change

Payroll companies say the yearlong change could happen seamlessly even if Congress waits to pass a 2012 extension until the last days of 2011.

"The simple rate change is really a layup for us," said Frank Fiorille, director of risk management at Paychex Inc., which handles payroll processing for 564,000 small and medium- sized employers. "In fact, we can go right down to the last hour to get it done and have it work pretty effectively."

On Dec. 17, the Senate passed a two-month extension of the 4.2 percent rate. House Republicans have objected to the Senate plan and were citing Isberg's analysis yesterday.

The Senate added a twist to the extension, only allowing the first $18,350 of wages to be taxed at the lower rate. That's one-sixth of the $110,100 annual limit. The provision was designed to prevent the benefits from flowing to high-income workers who would be paid more than $18,350 in the first two months of the year.

Without that $18,350 cap, someone earning wages of more than $660,600 would be able to get the full year's benefit of the tax cut before the end of February.

Limiting Reduction

The legislation also limits workers who could otherwise shift the timing of their income to take advantage of the lower rate in the first two months of 2012. More than 10 percent of the workforce will reach the $18,350 limit, Isberg wrote.

The two-month proposal would cause logistical problems, said Isberg, who works at Automatic Data Processing Inc. but wasn't speaking for the company.

"System-wise, it would cause more problems than if nothing were done," O'Toole said.

Isberg's group sent lawmakers a letter yesterday warning that there is "insufficient lead time" to implement the separate limit for January and February, which would require significant programming changes.

The approach, he wrote, "could create substantial problems, confusion and costs affecting a significant percentage of U.S. employers and employees."

Easier To Implement