Two-Month Payroll Tax Holiday Passed By Senate, Pushed By President, Cannot Be Implemented Properly, Experts Say

Dec 19, 2011 1:50pm

Officials from the policy-neutral National Payroll Reporting Consortium, Inc. have expressed concern to members of Congress that the two-month payroll tax holiday passed by the Senate and supported by President Obama cannot be implemented properly.

Pete Isberg, president of the NPRC today wrote to the key leaders of the relevant committees of the House and Senate, telling them that “insufficient lead time” to implement the complicated change mandated by the legislation means the two-month payroll tax holiday “could create substantial problems, confusion and costs affecting a significant percentage of U.S. employers and employees.”

ABC News obtained a copy of the letter, which can be read HERE. Isberg agreed that it would be fair to characterize his letter as saying that the two-month payroll tax holiday cannot be implemented properly.

The NPRC is a non-profit trade association that does not take positions on policy. The group represents organizations that provide payroll processing and services to more than 1.5 million employers, impacting one third of the private sector.

“We’re neutral and we’d be happy to do the work,” Isberg told ABC News.

“The concern is really for those who don’t use a payroll service provider,” he said. Americans will have different outcomes, he said, causing confusion “because they’ll have different outcomes. Some will have it done on time, some won’t, some will have adjustment notices later in the year.”

The two-month payroll tax holiday, which the president has said should be extended throughout 2012, will mean that wages would face a Social Security tax of 4.2 percent during January and February, but it would increase to 6.2 percent in March.

Isberg wrote that “many payroll systems are not likely to be able to make such a substantial programming change before January or even February. The systems affected tend to be highly complex, normally requiring at least ninety days for a change of this magnitude for software testing alone; not to mention analysis, design, coding and implementation.”

Part of the issue has to deal with Congress’ desire to make sure “that highly compensated employees not enjoy the full benefit of the 2% tax break because of bonuses or other high compensation falling into the first two months of the year,” Isberg wrote, saying “there simply is insufficient time to implement this major change in withholding requirements.”

UPDATE: Asked about this letter, White House press secretary Jay Carney said today that “because Congress was so slow to get its work done, last year this was an issue when the payroll tax cut was extended — that it was so late in the year that it had — it created complications, A.  But it — those were worked out. B, you know, this president is committed to make sure that his administration — the Treasury Department and his administration works with American businesses to ensure that this tax cut is extended for American taxpayers, wage earners, people who get a paycheck, 160 million.  You know, he would far rather ask this administration to work overtime during the holidays to make that happen than ask Americans to spend the holidays worrying how they’re going to make ends meet with a thousand dollars less in their pockets.”

At the Treasury Department Jenni LeCompte, said, “Everyone agrees that a full-year extension of the payroll tax cut would have been preferable, which is why the Administration has long advocated an extension for the entirety of 2012.  Unfortunately, in the waning days of this session of Congress, Members were unable to reach agreement on the details of a year-long extension that could generate strong bipartisan support.  The best they could do was the two-month extension passed by a vote of 89-10 in the Senate on Saturday. While any short-term extension is bound to create some administrative complications, it is feasible to implement the bipartisan Senate bill, and the Treasury Department will work with employers to ensure the smoothest possible implementation.  In the current economic situation, any such complications will be outweighed by the economic benefits of ensuring that taxes do not go up on 160 million Americans starting on January 1st.”

-Jake Tapper

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