Payroll Industry Sees Major Flaws In Senate’s Two-Month Payroll Tax Cut Extension

The trade association representing companies that process payrolls for American businesses are telling Congress that the Senate’s two-month payroll tax cut extension may be impossible for them to implement correctly:

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.”

From the letter [PDF]:

Accordingly, NPRC advises policymakers that we believe there is insufficient lead time to accommodate the proposal embodied in H.R. 3630. In our opinion enactment of HR 3630 as written could create substantial problems, confusion and costs affecting a significant percentage of U.S. employers and employees.

The difficulty is in establishing a new Social Security Taxable Wage limit of $18,350 for the two month extension period. More than ten percent of the workforce1 is likely to meet that limit, and would be subject to the higher 6.2% tax rate for earnings over that amount. However, 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.

The association recommends a  number of policy changes to the bill, all of which would require House and Senate action to implement. The NPRC was joined late yesterday by another trade association, the National Association of Wholesale-Distributors, which sent its own letter [PDF].

Leaving aside the policy questions dividing the House and Senate regarding whether this tax cut should be extended for two months or a full year, these implementation issues strike me as a serious concern, especially for small and mid-size businesses, which typically do payroll in-house rather than relying on outside firms. Unless this is fixed before December 31st, we could be looking at somewhat of an accounting nightmare come January.

FILED UNDER: Congress, Deficit and Debt, Economics and Business, Quick Takes, Social Security, Taxes, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020.

Comments

  1. John Peabody says:

    If you are a payroll service that must adjust becuase of new legislation, well, yeah, it sucks to be you. But this is hardly unprecendented. Sounds like the cost of doing business to me. If you sell payroll services, you must be prepared for whatever comes down the pike. If it’s a radical change, it would be better to have prepared for it (however slight), than write a waah letter.

  2. @John Peabody:

    Yea because what fool would think that people who actually do this stuff for a living actually know something more about this than a bunch of Senators who punted on this issue so they could get home for Christmas early?

  3. superdestroyer says:

    @John Peabody:

    I have noticed that many progressives use the term “cost of doing business” to mean that they refuse to think about the impacts of what they are proposing or supporting.

    Such a hand wave excuse does little to promote the idea that progressives are “rational” and are for “good governance.”

  4. Dean says:

    @Doug Mataconis:

    Doug, I don’t agree that they punted on this. It’s more like they took a knee in the end zone for a safety.

  5. Hey Norm says:

    “…a bunch of Senators who punted on this issue so they could get home for Christmas early? “

    Well…except for the fact that Senators punted because of the intransegence of the Tea Bag causus who is insisting on a hyper-partisan, poison-pill-filled, bill. Other than that factual error…

  6. SKI says:

    @Doug Mataconis:
    “Punted on the issue”? Really?!?!

    The demand for the Keystone expedited review drives the timeline. The GOP, understandably, didn’t want to give up their hammer (whether or not they should be using the payroll tax as a hammer is a different issue of course) such that the Admin could “review” in 60 days and come back with another rejection.

    Once Keystone expedited review was linked, a 2 month was all that was possible.

  7. @John Peabody:

    Are we gonna hold the government to that same standard? Last year my income tax return was delayed four months because the IRS wasn’t ready to handle the repayments of the FTHBC, even though it had known for two full years those repayments were going to be coming for in 2011. No one at the IRS suffered any sort of penalty for this failure.

    Meanwhile private businesses are expected to get their systems redone in two weeks, including cancelling everyone’s Christmas vacations to make it possible?

  8. Hey Norm says:

    Again…If the drama queens in the tea bag caucus hadn’t created another crisis, from what everyone agreed was going to happen anyway, then we wouldn’t be talking about this problem.
    Bottom line…the look good in tricorns…but they are un-interested in, and incapable of, governing.

  9. What aversion do you and the Democrats in the Senate have to a Conference Committee, which used to be how these things were dealt with on Capitol Hill?

  10. Tano says:

    Ya gotta figure that there is something wrong with an industry that, when confronted with a minor change in tax rates (from a rate that was in place this year going back to a rate that existed before that) needs a minimum of 90 days to figure out how to program the change.

    90 minutes? I could understand. 90 days????

  11. bandit says:

    @Hey Norm:

    Your 1 string banjo is stuck on stupid

  12. Hey Norm says:

    “…What aversion do you and the Democrats in the Senate have to a Conference Committee, which used to be how these things were dealt with on Capitol Hill?”

    The key words there are used to be. We’ve seen over and over again what happens. A deal is struck and then the tea bag caucus says no. It happened with the phony debt crisis. It happened with the Senate deal on this. House GOP Leadership agreed to a deal. Then they couldn’t manage their caucus. You cannot deal with the insane. So why waste time.
    I say let the payroll tax expire.

  13. Hey Norm says:

    @ Bandit…
    How does that lead dogs butt smell?

  14. BluePenguin says:

    The GOP has set a trap and the Dems are walking right into it. A 2 month extension is a joke and it is weak for the Dems to defend it. The GOP is looking stronger for pushing for a year extension – they look like they are fighting for the people. Instead of defending a stupid 2-mos extension Dems should focus on the Keystone pipeline and how something totally irrelevant to the payroll tax has become a requirement from the GOP. Position that GOP feels it is more important to push through special interest legislation versus securing a straight up vote on maintaining tax cuts to the middle class. Corporations over the people. And for the record I traditional vote Dem and this makes me #headdesk

  15. @Tano:

    It’s not just a change in the tax rate. It’s a change from a system where there is one flat tax rate for the whole year to one where there is a progressive tax rate for the first two months of the year and then a flat tax again for the remaining 10 months. That’s a major change to the system’s behavior, not just changing a number.

  16. mantis says:

    “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 trade group is merely pushing their clients’ interests. Hey, you’re screwed unless you hire us!

  17. anjin-san says:

    What aversion do you and the Democrats in the Senate have to a Conference Committee, which used to be how these things were dealt with on Capitol Hill?

    If you are concerned about how we have moved away from “the way these things were dealt with”, you might want to have a chat with Republicans on the hill who have a single agenda – damage Obama, by any means possible.

  18. Nikki says:

    Meanwhile private businesses are expected to get their systems redone in two weeks, including cancelling everyone’s Christmas vacations to make it possible?

    Yes, if they want to maintain their contractual obligations with their clients.

  19. WR says:

    @BluePenguin: If you really vote Dem, that’s great. Now you should start listening to them instead of the right wing hacks who say that the Dems only want a two-month extension. They want a two month extension in which they will work out the deal for the rest of the year, instead of doing what the Republicans want, which is to let the tax break expire. Oh, and they’re asking for the two month extension because the Rs have been unwilling to deal in good faith before time ran out.

  20. @Nikki:

    Yes, if they want to maintain their contractual obligations with their clients.

    Yes, but what about the government’s obligations to it’s “clients”? You complete ignored the point that the government expects a level of flexibility from private citizens and business that it has repeatedly demonstrated it is nowhere close to being able to provide itself.

    If I was four months late paying my taxes and my only response was “well, I would have liked to pay on time, but my computers weren’t ready” and then just shrugged it off, I’d be paying huge fines or possibly going to jail.

  21. MM says:

    @Tano: 90 days is probably a negotiating tactic, but it’s not unreasonable to assume that there will be problems. Last year’s cut caused our payroll software vendor to put in a lot of extra work because they had never developed the software to have separate FICA rates for the employer and employee contribution.

    Now ask those vendors to make it date specific (and calculate differently for companies that pay bi-weekly, weekly, monthly and semi-monthly). And have adequate time to test it for bugs, since if the feds or the state don’t agree that we sent them the correct amount of money after the 1st quarter, guess where we will look for answers.

  22. Mr Bogus says:

    @Doug Mataconis:

    Both sides of the aisle agree that this tax cut should be extended for a year. With that being said why would there be any concern that they won’t do so after 2 months. This report and those letters are assuming that the cut is only going to last for 2 months then change and that is not the case if we are to believe the Congressmen at their(current( words. If this fix can be negotiated in “less than an hour” as Cantor has stated then in can easily be done within the next 2 moths if we look at this logically, no?