Smart Business spoke to Mark Strippy, Executive Director, Payroll Services at Heartland Payment Systems®, about how businesses can ensure they don’t miss out on savings from the Temporary Payroll Tax Cut Continuation.
If you need a break from political discourse, don’t be too hasty. One of this year’s trending topics for political debate among members of Congress and presidential candidates is something that you’ll want to tune in to.
In late December 2011, Washington announced an extension of the reduced payroll tax rate that went into effect in 2011. The topic became hot several months ago because of the then-impending extension deadline of Dec 31, 2011, and continues to pick up steam as a result of a proposed full-year extension.
Although it may be a point of contention among politicians in this, an election year, the extension works to your favor as a business owner, and to the favor of your employees.
The initial payroll tax rate reduction was proposed as a one-year “holiday” and provides employees with a 2 percent reduction in the Social Security tax withholding rate. That reduction dropped the tax rate from 6.2 percent to 4.2 percent of wages. The Temporary Payroll Tax Cut Continuation Act of 2011 has added two more months to the reduced Social Security tax rate.
The cut has meant more money in the pockets of working Americans. And, as an employer, you pay in to the tax based on the rate paid by your employees, so you’ve enjoyed a savings as well.
The business of implementation
If you process payroll in-house, the payroll tax cut will require some adjustments in your bookkeeping. To avoid having to make adjustments after 2012 comes to a close, you should work with a tax specialist sooner, rather than later.
For businesses that process through a payroll service, make sure to find out if the company is processing on compliant software. If the payroll service is using outdated technology, it may face some challenges processing the change.
For payroll service bureaus that are up to date on the requirements for processing payroll for 2012, implementing the changes is virtually seamless for your business.
There are several key dates in 2012 to keep in mind in the implementation of the tax reduction extension:
- Jan 31: Employers should have begun implementation of the tax reduction. If you haven’t done so by Jan 31, it means you have over-withheld.
- Mar 31: Employers who over-withheld in January need to make an offsetting adjustment prior to this date.
- Apr 30: Quarterly employment tax returns for the first quarter are due by this date.
One thing to note is employees earning more than $18,350 in wages during the two-month period are subject to the “recapture” provision. This means these employees will pay an additional income tax of 2 percent on those wages they earn during the first two months of the year.
Why it’s a bright spot
Right now your business is experiencing a savings, which is a good thing for your bottom line. As it was intended to do, the temporary payroll tax cut frees up some of your funds to be reinvested in your business for things like new jobs, inventory and capital improvements.
Don’t miss out on these savings by not being compliant. Be sure you or your payroll specialist is following the tax calendar as it applies to your payroll taxes. Otherwise, the money you are saving from this payroll tax holiday could cost you in unnecessary fines.
Washington continues a dialogue about a possible full-year extension for the Payroll Tax Cut, so be sure to follow this hot topic.
About Heartland Payment Systems
Heartland Payment Systems, Inc. (NYSE: HPY), the fifth largest payments processor in the United States, delivers credit/debit/prepaid card processing, gift marketing and loyalty programs, payroll and related business solutions to more than 250,000 business locations nationwide. A Fortune 1000 company, Heartland is the founding supporter of The Merchant Bill of Rights, a public advocacy initiative that educates merchants about fair credit and debit card processing practices. The company is also a leader in the development of end-to-end encryption technology designed to protect cardholder data, rendering it useless to cybercriminals. For more detailed information, visit HeartlandPaymentSystems.com or follow the company on Twitter @HeartlandHPY and Facebook at facebook.com/HeartlandHPY.