Will Congress mess up your paycheck?

@CNNMoney February 13, 2012: 5:29 AM ET
Congress may think it has until Feb. 29 to extend the expiring payroll tax cut. But in fact payroll processors will have to start cutting checks for March payroll starting on Feb. 20.

Congress may think it has until Feb. 29 to extend the expiring payroll tax cut. But in fact payroll processors will have to start cutting checks for March payroll starting on Feb. 20.

NEW YORK (CNNMoney) -- You heard about the "do nothing" Congress? The "make work" Congress may be more accurate.

At least from the perspective of the companies that process the nation's payrolls. They have had to do back-flips to accommodate lawmakers' foot-dragging on the temporary payroll tax cut.

They had to perform backflip No. 1 when Congress created the tax cut in mid-December 2010, to take effect all of two weeks later.

Backflip No. 2 came in December 2011, when Congress waited until just before Christmas to renew the cut for a mere two months starting one week later.

Now, payroll processors are warming up for backflip No. 3 as they stare down an expiration date of Feb. 29 -- less than three weeks away.

Lawmakers are no closer to figuring out how to pay for the extension -- which is what has stymied them since last year. And they're scheduled to be on recess for the whole week of Feb. 20.

That situation leaves folks like Chad Richison, CEO of Paycom -- a payroll service provider for over 10,000 mostly mid-size businesses -- both mystified and, frankly, miffed.

Payroll tax holiday running down

"I'm not griping about doing the work. It's what we're paid to do. Our customers will be taken care of," Richison said. "But we're unnecessarily being put in this situation."

Lawmakers, he added, are either "incredibly disconnected or incredibly insensitive that this is a deadline business."

Here's what Richison means: Congress may think it has until Feb. 29 to pass another extension of the payroll tax cut. But the fact is, many employers' first March-dated paychecks will need to be cut well before the last day of February.

Richison said Paycom will process the first March checks for 9% of its clients the week of Feb. 20, and 36% of its clients the week of Feb. 27. If his customers are representative of businesses' across the country, then 13.5 million companies will be working on the same schedule, he estimates.

Congress = Uncertainty, Inc.

The payroll tax cut has reduced how much 160 million American workers pay into Social Security on their first $110,100 in wages. So instead of paying in 6.2%, they've been paying 4.2% for the past year and two months. The tax cut is worth about $83 a month for someone making $50,000.

But unless Congress takes action, the rate by law will revert to 6.2% for paychecks dated March 1 and beyond. And payroll processors have to obey current law.

So if Congress doesn't seal the deal by the middle of this week, payroll processors will have to change their systems to reflect a 6.2% payroll tax rate. Then, assuming Congress eventually acts, they would change their systems back again to reflect an extension of the 4.2% rate and figure out how to reimburse workers who had too much withheld.

It would add insult to injury if Congress at the last minute decides to do a very short-term extension and then a longer one.

After all that gratuitous drama, the payroll companies should get a little breather before gearing up for what is likely to be backflip No. 4.

Congress will need to decide whether to extend the Bush-era tax cuts, which are set to expire on Dec. 31. And if so, for how long. Lawmakers likely won't get around to debating this in earnest until after the November elections.

Bye-bye Christmas. To top of page

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