SOURCE: Payroll On A Budget
DALLAS, TX--(Marketwire - Nov 29, 2012) - If Congress fails to act in the next few weeks to avoid the "fiscal cliff," business owners can avoid a lot of employee headaches -- and family heartaches -- by telling employees in advance what to expect in their first paycheck of 2013.
"It's going to be a rude shock for most employees," says Charles J. Read, CPA, president of Payroll On A Budget, one of the larger online payroll processing firms in the country. "We are already getting calls from savvy employers who realize that employee paychecks will be cut and asking for advice on how to alert their staff. We've created a fiscal cliff memo that CEOs can send to employees so they can better prepare or plan ways to minimize the impact on family budgets."
As it stands now, three different tax changes may impact the employee's paycheck -- the change in FICA withholding, a return to the Clinton era tax rates with the resultant tax bracket creep, and the possibility of being hit with the Alternative Minimum Tax.
- The FICA tax withholding, temporarily reduced to boost the economy in 2011, returns to the usual 6.2% tax rate from the current 4.2% rate. For an individual earning $30,000 annually, it is a loss of $600 annual net income.
- A return to the Clinton era taxes will also mean less money for families to spend. For a family with $50,000 gross income, their take home pay will go down $1,983 from $43,898 to $41,915 with both the tax rate and FICA changes, a reduction of 4.7% in spendable income.
- "The Alternative Minimum Tax which was designed to guarantee that the wealthy will not take advantage of legal tax deductions to pay little or no tax, may hit some families particularly hard," Read explained. "Some estimates indicate that one out of every five taxpayers will pay the Alternative Minimum Tax for the first time. That's going to be a very unpleasant surprise come April 15, 2013."
The Alternative Minimum Tax (AMT), which reduces deductions and, in some cases, artificially creates income, moves taxpayers into a higher tax bracket. The Alternative Minimum Tax is triggered by having three or more dependent children, substantial property tax deductions, large medical expenses, or primary residence in a state with high personal income tax.
According to estimates by the Tax Policy Center, more than half of all married couples will owe an additional AMT of around $4,000 unless Congress acts. More than one third of families with children will fall subject to the AMT with parents of three or more children facing an extra tax of $4,700.
Families could also be impacted by changes that reduce unemployment benefits (one report says 2 million people will lose benefits), increase estate taxes, and cut Medicare payments.
For additional examples, small business owners may view Read's video tips on communicating to employees about the fiscal cliff.
"Smart employers will tell their employees, in advance, how their paychecks will be affected," Read continued. "Education now will reduce a lot of headaches for the employer or Human Resources teams. And, if Congress avoids the dilemma with some speedy negotiations this year, the employer has demonstrated that they care about their employees' welfare by giving them accurate information to avoid a financial crisis by some advance planning."
Read also notes that if Congress does act with some changes, the CEO memo for employees will be updated to reflect the final impact for employees.
About Payroll On A Budget
Payroll On A Budget, the leading online payroll processing services company, provides secure, paperless payroll solutions for small businesses with 1-20 employees. One of only a few payroll firms with a Certified Public Accountant on staff to assist clients, the company was designed to save business owners time and money by providing payroll reports and tax filings, direct deposits or debit card loads, year-end W-2s, and employee self-service tools as standard services. Payroll On A Budget offers affordable prices of $19.95 per payroll plus $1.25 per employee for standard services.
Established in Lewisville, Texas in 1991 by a CPA and former Marine, the company serves clients in more than 40 states and territories and enjoys an "A" rating with the Better Business Bureau. For more information, please visit www.payrollonabudget.com or call 972-353-0000.
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