Payroll Tax Impasse Means Headache for Small Employers

Posted by: John Tozzi on December 21, 2011

Congress’s failure to extend the 2 percent payroll tax cut expiring at the end of this year means employers will likely have to start withholding more money Jan. 1. Payroll providers told Bloomberg News that changing the rate for a full-year is pretty simple, while putting in place a two-month extension (which the Senate, but not the House, approved) is somewhat trickier. Workers who will watch their take-home pay shrink will obviously suffer the most from the squabble. Small companies that don’t outsource their payroll will face some inconveniences as well. Bloomberg’s Richard Rubin reports:

Smaller businesses that use off-the-shelf software or prepare pay stubs by hand would also face difficulty complying with late changes.

“It’s a complication in the employer’s life and I think the smaller employers are the ones who are going to feel the confusion more directly,” said Abe Schneier, a senior technical manager at the American Institute of Certified Public Accountants in Washington.

People who work for themselves and pay both the employer and employee sides of the tax will have trouble ensuring they make the correct quarterly estimated tax payments, he said.

Schneier said he thought that large payroll providers would face complications, though would largely be able to manage the changes.

For anyone tallying Congressional ironies, the same House Republicans who so often profess to love small business and tax cuts scuttled the compromise to extend the tax cut that both parties in the Senate agreed to last week. In doing so, they may have created a payroll headache for Main Street employers. Congress’s approval rating this month: a record low 11 percent.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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