As they were last year, payroll tax administrators are hoping Congress resolves the issue once and for all, according to Michael O'Toole, senior director of government relations of the American Payroll Association.To clarify the issue, when Congress first passed the Social Security tax holiday in late December 2010, it created a nightmare scenario for many businesses that received very little attention at the time. The company for which I work does payroll for over 50 clients, and we were forced within the space of several weeks to find, purchase and implement new payroll software, because our old software was unable to handle the difference in the Social Security "contribution" rate and the reduced withholding rate. This was well known among the industry at the time, but received little if any attention from the politicians whose puttering created the debacle.
"Payroll systems and the federal payroll tax reporting scheme are not set up to accommodate more than one employee Social Security tax rate in a calendar year, let alone within the same quarter," he said.
Now here we are a little more than a year later, and once again the politicians have businesses biting their nails. While the main focus is on the $40/week difference the tax rate reduction means for the average worker, which is not insignificant in itself, some damage has already been done by allowing the issue to drag on this long. Business must be able to plan ahead, and cannot do so in the current situation. If the tax holiday ends, not only will millions of business suddenly be the proud owners of obsolete payroll software, but the IRS will need to redesign the quarterly 941 form in a way that has never even been contemplated. To make provision for this possibility, software developers must already be working on these changes in order to allow for testing. Payroll department managers must be formulating contingency plans as they await the outcome of Congressional action. And all of this amounts to wasted productivity at a time the national economy can ill afford it.
At this juncture, the wisdom of the tax holiday is a moot point. The die has been cast, and to end the tax holiday on February 29th would be foolish. An extension to March 31st would be at least a nod to businesses, but would still amount to a band-aid on a broken leg. Politicians need to allow businesses to cross off "find new payroll software" from their list of 2012 concerns.
In the Wall Street Journal, Kimberly Strassel speculates that the Republicans hold on the majority in the House is no sure thing. The Republican party could win the gratitude if not electoral support of multitudes in the business community by taking seriously the chaos that is looming over this payroll tax holiday issue. While it lacks the popular appeal of the tax reduction itself that affects all employees paychecks, eliminating uncertainty and ensuring stability in productivity affects everyone in ways that are ultimately comparable in significance to the immediate impact on take-home pay. Republicans need to show the maturity and wisdom to challenge the President and the Democrats in Congress on this issue and come down on the side of common sense.