Tax cuts among several uncertain issues for 2011 company payrolls

With an eye on the calendar, payroll preparation and accounting firms in the Corridor are hoping Congress will decide fairly soon whether to extend Bush-era tax cuts.

Software used to calculate paychecks after Jan. 1 must be updated to reflect any changes in tax withholding rates. If Congress fails to extend the cuts, tax rates for all Americans would revert to Clinton-era levels.

A provision in the compromise deal between President Barack Obama and Republican leaders in Congress also would reduce the employee contribution to Social Security from 6.2 percent of pay to 4.2 percent for a year.

Kevin Ballard, a partner with the accounting firm of Hogan-Hansen in Cedar Rapids, said the uncertainty over final passage of the tax cut agreement has software developers scrambling.

"We knew there was trouble brewing, and there's really no certainty that the deal between the president and the Republicans won't fall through,” Ballard said. “This also could delay income tax preparation software.”

Even if Congress delays a decision, it won't make that much of a difference for employees who may have the wrong amount of taxes withheld on their first paycheck of 2011.

“It's not going to be that much money that it's going to make or break you when you do your taxes at the end of the year,” said Joann Albert, payroll supervisor for Kabel Business Services in Iowa City. “If you have to pay more in taxes, it's not going to be because of the amount that was withheld on your first payroll check.”

Linda Haas, president of Future Systems in northeast Cedar Rapids, said payroll preparation firms are concerned about more than the tax cuts and Social Security contributions.

“The earned income tax credit was to expire on Dec. 31, but that also is supposed to be extended,” Haas said. “Also on the plate are the employer-paid COBRA health benefits that could be deducted. We've heard that may be extended, but no one knows for sure.”

Haas said employers also have been able to take advantage of incentives for hiring unemployed workers under the HIRE Act signed into law in March by Obama. The law is due to expire Dec. 31, but pending legislation would extend the HIRE Act for six months.

Terry Wightman, president and owner of Pardata, a Cedar Rapids payroll preparation firm, said the uncertainty comes at a particularly difficult time for accounting and payroll firms as they prepare W-2 forms by Jan. 31.

“We're getting ready for our busy season,” Wightman said.