The year’s end is always a frantic time for tax preparers. This year, there will be an extra helping of frenzy, courtesy of Washington, D.C.
The tax-cut bill that gained final approval in Congress late last week, coming so late in the year, has whipped up a mild panic for accountants, payroll staffs and anyone else who handles taxes.
The Internal Revenue Service released new tax-withholding tables Friday, a little more than two weeks before the new year begins. But payroll processors say the delay in the withholding schedules means the wrong amounts may be taken out of many workers’ paychecks in the first few weeks of January.
Accounting firms are rushing to advise clients, master the tax-code revisions and update software.
Details have been in flux. And nerves are on edge.
Jim Bolek, an executive at Basic Payrolls Plus in Grand Rapids, Mich., which processes paychecks at 400 companies, said the delay in the 2011 tax-withholding tables has been giving him heartburn.
“It’s a huge headache,” Mr. Bolek said. “Just sitting here waiting gives us a ton of stress. The longer we wait, the bigger the headache.”
The IRS said it recognizes that late-in-the-year changes in the tax code pose problems for payrolls. It said employers should start using the new tax-withholding tables by Jan. 31. If employers withhold too much in taxes during January, they should repay workers by the end of March, the IRS said.
The bill will, among other things, extend the lowered income-tax rates for two years; renew long-term unemployment aid; reduce workers’ Social Security taxes in 2011; and let companies increase write-offs for capital investments next year.
The pace of activity inside accounting and payroll offices has intensified because the changes are coming so late in the year.
The new withholding tables determine how much take-home pay ends up in paychecks starting next month. In most years, payroll processors and tax preparers say, they receive the IRS‘ withholding tables around mid-November.
“It’s really coming down to the wire,” said Harry Buckley, chief executive officer of Jackson Hewitt Tax Service.
Kathy Pickering, executive director of the Tax Institute at H&R; Block, noted, “It’s not just a matter of [flipping] a switch and you’re ready to go.”
Starting next week, Mr. Bolek’s company must begin to cut January 2011 paychecks for some clients. Because the withholding tables came out so late, the January checks will probably be processed using the old 2010 tables.
That means too much money could be taken out of many workers’ paychecks.