Expiration of Tax Legislation to Impact Employer Compliance Duties

September 2, 2001 (PLANSPONSOR.com) – Workers could see tax increases in their paychecks and employers’ compliance responsibilities would change in 2011 due to four pieces of legislation set to expire December 31, 2010.

Unless Congress acts before the end of the year, the Making Work Pay credit, the Advance Earned Income Credit, and the 2001 and 2003 tax cuts are all set to expire, the American Payroll Association advises. Millions of workers could see the amount of tax taken from their paychecks increase by 50%, the group contends.  

Specifically, the Making Work Pay credit provides a credit of up to $400 per individual and $800 per married couple by reducing workers’ income tax withholding . If the legislation expires, workers could see an additional up-to-$34 per month in taxes taken out of each paycheck per individual and $67 per married couple filing jointly. Employers would have to adjust employees’ tax withholding.  

The Advance Earned Income Credit lets employees who qualify for the Earned Income Tax Credit get anticipated tax savings right way. The program puts some of their anticipated tax savings directly into each paycheck during the year. If this legislation expires, workers who qualify could see an up-to-$152 decrease in take-home pay per month as they will have to wait until they file their 2011 return in 2012 to receive their tax credit.  

According to the APA, implications for Workers and/or Employers if the 2001 and 2003 tax cuts expire, include: 

  • The 10% tax bracket will be eliminated. The first $8,375 of taxable income of a single filer, now subject to a 10% tax rate, will be taxed at 15% — a 50% increase for Americans whose income, after subtracting the standard deduction and personal exemptions, is $8,375 or less.  
  • The tax credit parents can claim per qualifying child under age 17 will decrease by 50% per qualifying child from $1,000 to $500.  
  • The tax cuts reduced the tax burden on married couples by increasing their standard deduction to exactly twice that of a single person and increasing the amount of income subject to the 10% and 15% taxes to exactly twice that of a single person. These equalizers will disappear if the cuts expire.  
  • The supplemental tax rate, the rate payroll professionals used to calculate the tax on bonuses, commissions, and other supplemental pay, will increase from 25% to 28%.  
  • Many of the tax rates will increase, with the highest tax rate rising from 35% to 39.6%. 
  • Non-job-related educational assistance will no longer be a tax-free benefit. Currently employers may provide up to $5,250 per employee, per year in non-job-related educational assistance tax-free. 

For more information on the tax changes, visit http://www.nationalpayrollweek.com.