Fiscal Cliff Creates Payroll Processing Uncertainties

Payroll processing will become less of an exact science this week because of uncertainties over what payroll and income tax rates will be applicable in 2013. The ongoing negotiations in Washington meant to avert a tumble over the so-called “fiscal cliff” have put payroll managers nationwide in this difficult situation.

At many companies, employee pay must be processed now for paychecks to be issued on a timely basis in early January. Not knowing what eleventh-hour deal might be reached has made it impossible to know for certain how much employers should deduct from 2013 checks. Now, despite lawmakers and the President cutting their Christmas vacations short in order to return to the capital for further bargaining sessions, it seems that a deal might not be reached in time at all.

However, even the assumption that it’s too late to prevent a plunge over the fiscal cliff doesn’t provide certainty on every tax issue. If our elected officials do head out for New Year’s Eve parties on the evening of December 31 without having reached new agreements on taxes and spending, taxes will go up for just about everyone. In some cases, though, there will still be a question of just how much they’re going up.

Every worker will be paying more toward Social Security, because the payroll tax rate will revert to 6.2 percent after having been temporarily lowered once again to 4.2 percent in 2012. Also, that rate will apply to the first $113,700 in wages, an increase from the current figure of $110,100. If Congress doesn’t act, those numbers are certain.

Income tax withholding will be trickier. One component of the fiscal cliff is the expiration of Bush-era tax cuts, which would mean elimination of the current bottom bracket, 10 percent. The new bottom income tax bracket will change back to 15 percent. However, knowing that does not tell employers what the income ranges will be for the various brackets. That direction must come from the IRS. Employers will most likely stick to the old tax withholding tables for the time being, with any necessary adjustments being made later.

There has been a lot of speculation that Congress and the President will eventually work out a deal some time later in January. That means that a new income tax structure could be put into place and the Social Security tax could be tweaked again. Worker used to getting a more-or-less identical paycheck every pay period might see the amount of their checks vary in January until the tax picture is cleared up as political events unfold.

Padgett Payroll Services can take care of the complexities of payroll administration for your small business. Hiring our payroll experts means that you don’t have to be one! Call Padgett Payroll today at (706) 548-1040 to find out more about how we can help simplify your life as a small business owner.

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