The way Congress screws around every year, taking its sweet time getting to tax legislation that affects all of us, reminds me of that old saying:
Sadly, while that thought pops into our heads every time the boss brings us a last-minute project that "must be done yesterday!" we don't get to actually live by that phrase. Other people's lack of forethought almost always is our emergency.
That's sort of how employers are feeling right now in connection with the payroll tax reduction that will be in effect for 2011.
This 2 percent cut in the amount withheld from workers' paychecks -- making the employee contribution to Social Security next year 4.2 percent of pay rather than the current 6.2 percent; employers will continue to pay their matching portion at the higher rate -- is part of the recently enacted tax bill.
The one-year payroll tax holiday effectively replaces the Making Work Pay credit, although there's debate over which is better for what taxpayers. That's a discussion for a future blog post.
But at least this payroll tax adjustment won't require any extra effort on the part of individuals; in other words, no Schedule M required for 2011 tax returns. Workers will simply see a bit of an increase in their paychecks each pay period next year.
Or maybe not in every pay period after all.
IRS allowing adjustment time: Congressional procrastination puts everyone in a bind, from the IRS to companies to us taxpayers.
This year, the IRS took a leap of faith and started reprogramming its computers to account for some legislatively promised changes, specifically the alternative minimum tax exemptions (again, a topic for another future blog post). That fingers-crossed move paid off, thank goodness.
And the agency also has done a good job in completing the new, lower payroll tax tables to reflect the 4.2 percent amount. On Dec. 17, the day the new tax act officially took effect, the IRS alerted employers about the new withholding info.
With the release of the tweaked tables, Uncle Sam also acknowledged that Congress' lack of planning has caused a bit of an emergency for payroll administrators.
So the IRS let companies know that since "the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems … the agency asks employers to adjust their payroll systems as soon as possible, but not later than Jan. 31, 2011."
That means you might not see slightly more pay in your first 2011 check, but you should see the changes by February.
And if your workplace is a tad slow in getting the new withholding system in place and takes too much out of your pay for FICA in early 2011, the IRS says employers should make adjustment in workers' pay "as soon as possible but not later than March 31, 2011."
Essentially, the IRS says you've got to have all the extra cash from the payroll tax change by the end of March.
So keep an eye on your 2011 paychecks. If they don't reflect the new law soon into 2011, talk with your boss about what's holding up the change.
"Lack of planning" items available from Cafe Press
- Merry Taxmas! House OKs tax bill
- The Making Work Pay credit: The federal tax break
nobody knows about
- IRS commissioner chides Congress for its delay
in dealing with expired taxes
- IRS decision key to January tax hikes
- Tax cut timing could be costly
- Midyear tax tip #3: Adjust withholding
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