"Fiscal cliff" creates waiting game for payrolls firms

WASHINGTON/NEW YORK Fri Dec 21, 2012 7:28pm EST

WASHINGTON/NEW YORK (Reuters) - At payroll processing businesses across the United States, the "fiscal cliff" stalemate in Washington means uncertainty over tax-withholding tables just days before the start of 2013.

The U.S. Internal Revenue Service still has not issued the tables for next year that show how much money employers should hold back from workers' paychecks to cover federal income taxes.

Payroll processors need the tables to get their systems geared up for the new year. The tables are set by many factors, including tax rates and annual inflation adjustments.

In anticipation of late-breaking developments, Rochester, New York-based Paychex Inc will be serving Buffalo chicken wings for staffers working late on New Year's Eve, said Frank Fiorille, an executive at the payroll processing giant.

"Our systems are flexible enough that we can wait almost up until the last minute and still make changes," he said.

The IRS appreciates of the impact of Congress' inaction.

"Since Congress is still considering changes to the tax law, we continue to closely monitor the situation," IRS spokesman Terry Lemons said in a statement. "We intend to issue guidance by the end of the year on appropriate withholding for 2013."

Tax rates are slated to rise sharply for most Americans if Congress and President Barack Obama fail to reach an agreement that averts the "fiscal cliff" approaching at year-end.

"The political process will determine one way or the other what" the IRS must do, said Scott Hodge, president of the Tax Foundation, a business-oriented tax research group.

For now, he said, from the tax-collection agency's viewpoint, "doing nothing is probably the best course." This would be because withholding tables distributed now might only have to be revised if Congress acts in the next few days.

Some payroll servicers are not waiting for formal IRS guidance. The American Payroll Association, which represents about 23,000 payroll professionals, told members on Friday to rely on 2012 withholding tables until the IRS releases the new forms for 2013.

The association said its decision was based on a statement earlier this month from an IRS official.

The agency would not confirm that policy on Friday.

Tax preparer H&R Block Inc said it will use 2012 tax-withholding tables if the 2013 tables are not issued.

Executives said they were frustrated with the uncertainty in Washington, but were doing their best to cope.

"We are not doctors or surgeons and this is not life threatening," said Rob Basso with Advantaged Payroll Services, an Auburn, Maine-based payroll processor that serves 30,000 businesses. "It is annoying and disruptive to people's lives, but we will get through it."

(Additional reporting by Jessica Toonkel in New York; Editing by Kevin Drawbaugh and Leslie Adler)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

How to get out of debt

Financial adviser Eric Brotman offers strategies for cutting debt from student loans and elder care -- and how to avoid money woes in the first place.  Video