For the Love of Taxes
by Christina Lynch, PHR
If you haven’t heard, you have not been listening to the news! Your pay may change after January 1, 2013. But it won’t be a late Christmas bonus or pay raise…let’s call it an opportunity to invest in the government. The Bush tax cuts that lowered federal income tax cuts are set to expire at the end of 2012 with little hope of extension. Furthermore, the two percent (2%) cut in the Social Security tax established in 2010 as part of the economic and jobs package is also set to expire this year.
So what am I trying to say? Your net pay could decrease. According to the Society for Human Resource Management (SHRM) Payroll Tax Cut Puts Employers in Quandary article, “expiration of the Social Security tax cut will mean that middle-income families will see their federal taxes increase between $700 and $1,000 in 2013….If the Bush tax cuts are allowed to expire, the Congressional Budget Office (CBO) projections reveal that middle-income workers could see their annual federal tax bill increase an average of $3,500.” Worst case, you and/or your employees will lose a maximum of $4,500 in 2013. That’s sacrificing $375 per month, $173 every two weeks, or $86.54 each week!!! This would be a great time to let the Accounting Department run payroll…
So why is it HR’s problem? Well, guess who gets to break the news to all of your employees? There are two reasons why employees love HR: 1. You hired them. 2. You pay them. Should your employees’ pay change, it will be your job to make them aware of the changes. Although January 1st is right around the corner, the decision to extend or allow the tax cuts to expire is under discussion in Congress and still undetermined. So, again, HR has to make a decision: Do you inform employees now of the potential reduction in net pay? Or, do you wait for the final decision before rattling the office? If you inform now, employees will be upset, but they have time to plan accordingly. If you choose to wait, and the tax cuts expire, prepare to be blamed for the last minute communication.
In the event the tax cuts expire, it is imperative to change the payroll system’s tax rates to reflect the new rates. If you use a payroll provider, make sure they change the rates. Checking the calculations on the pre-payroll report before fully processing payroll in January is dire. Verify the correct rates are used, as to avoid that awkward conversation with employees about taking out more than needed during the subsequent period. Trust me, it never goes well.
So, today, I leave with you uncertainty, a difficult situation, and an opportunity to revise your 2013 budget. Happy calculating!
Very good column. To add insult to injury, at this time of year some HR folks may also have the duty to inform staff of increases in benefit costs i.e. health insurance. In our case, nine percent higher cost which puts yet another drag on compensation. Very disheartening to young folks who see an increase of two percent and then watch it disappear if tax increases do indeed go through.