Payroll processors lobby against short-term tax cut

Payroll processing companies told Congress Monday that the two-month payroll tax extension passed by the Senate will be difficult and costly to implement.

The House GOP is expected to defeat the Senate bill in a vote Monday evening because members prefer a yearlong extension.

The National Payroll Reporting Consortium (NPRC) wrote to the Senate Finance and House Ways and Means committees to ask that the bill be modified, in part because payroll companies will not have enough time to change their computer systems in time to implement the bill.

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“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 letter states.

The key problem is a provision that limits the 2 percentage point reduction to the first $18,350 earned through February 2012. It is intended to prevent high-paid workers from benefiting disproportionately from the break.

Social Security payroll taxes are capped because high-wage earners could pay all their payroll taxes for one year in the first two months at the reduced rate, even if Congress fails to extend it beyond the end of February.

The group does not take a position on whether a payroll tax holiday makes economic sense overall.

“As mentioned in our correspondence to the tax-writing committees in July, the NPRC is strictly neutral on virtually all policy matters, such as whether a reduced Social Security tax rate is necessary or desirable,” the letter states.

The group recommends Congress either retroactively enact the tax cut at a later date, eliminate the cap and impose it later with more lead time, or apply the tax cut though the entire first quarter of 2012.