Monday, May 21, 2018

Fiscal cliff question hangs over payrolls

WASHINGTON — If the nation goes over the "fiscal cliff," some Americans will wake up Tuesday with financial headaches to rival a New Year's Eve hangover.

More than 2 million long-term jobless people would receive their final unemployment benefit check within days. Millions of taxpayers would be unable to file their returns early, resulting in delayed refunds. Taxes would rise immediately on workers across the board. Although some of those increases may eventually be reversed, the first paychecks of the year would be smaller until any legislative fixes kick in.

Even if the crisis is resolved quickly after the new year, it poses a short-term administrative nightmare for businesses. And it would be a financial blow to millions of people struggling to make ends meet in the aftermath of the Great Recession.

"As a working-class person, I would miss any money taken out of my paycheck," said Stephanie Smith, an office administrator in Sacramento, Calif. "I just feel that we're already paying high taxes, and it feels like we're still in a recession. Everybody wants to take money out of our paychecks, but nobody wants to put more in."

As the White House and Congress try to avoid the large tax increases and federal spending cuts coming next week, taxpayers, businesses and even the Internal Revenue Service are scrambling to figure out the effects if an agreement is not reached.

The fiscal pain could be averted by a last-minute deal. Even if there is no deal by Tuesday, Washington policymakers could retroactively reduce tax rates.

Businesses already are struggling to adjust. They've got to figure out how much in federal taxes to withhold from employee paychecks starting next week. But as of Thursday, the IRS still had not told employers what the 2013 withholding levels would be.

That limbo is particularly vexing for small firms as Golden State Magnetic & Penetrant. The Los Angeles company inspects, cleans and paints aircraft and aerospace components. The firm's president, Joanne Weinoe, does the payroll for herself and her 12 employees. At present, she doesn't know what the withholding should be for the next set of checks she cuts.

"I'm going to tear my hair out of my head and shoot myself," Weinoe joked, adding she'll wait until the morning of Jan. 4, her next payday, before she makes any changes.

"If I have to adjust them, it'll be additional work for me," she said. "Every time they change something, it becomes more work for employers."

The IRS said it continued "to closely monitor the situation" and would "issue guidance by the end of the year."

Workers might not see the new income tax rates immediately reflected in their paychecks. The American Payroll Association is advising its members to continue to use 2012 withholding tables until they hear differently from the IRS.

The payroll service Payality Inc., with headquarters in Fresno County, Calif., is urging its 700 clients with 25,000 employees throughout the state to hold off on issuing paychecks and making direct deposits for January as long as they can.

"We should have some direction by Dec. 31," company president Chet Reilly said. "Then we'll have to scramble as fast as we can."

In the meantime, Payality has programmed its software to assume the fiscal impasse won't be resolved and that the payroll tax will revert to 6.2 percent for employees from the 4.2 percent level of the last two years, he said.

"We think the likelihood of going off the 'fiscal cliff' is fairly large," he said. "We have it set that way and then we can dial it back" if an agreement is reached.

Adding to the uncertainty is the ability of Treasury Secretary Timothy F. Geithner, who oversees the IRS, to maintain the 2012 withholding levels even after tax rates rise.

Geithner could use the authority to prevent a short-term hit to the economy and potential confusion to employers if it appears a deal to prevent some of the tax rate increases was still possible even after the New Year's Eve deadline. There's precedent for such a move. In 1992, President George H.W. Bush ordered withholding levels temporarily set lower than federal tax rates to stimulate the economy.

Geithner has been cagey about whether he would take such a step.

"Don't over-interpret what that authority gives me," he told Bloomberg TV last month.

A Treasury spokesman had no further comment Thursday.

Freezing withholding levels would help for a short time, because it would prevent the loss to consumers of about $10 billion every two-week pay period in higher taxes, said Mark Zandi, chief economist at Moody's Analytics. But it is not a long-term solution to the hit the economy would take from a continued standoff.

Failure to prevent the tax increases and spending cuts, he said, would lead to drops in financial markets and remove incentive for businesses to invest. Most economists predict it would send the U.S. into another recession in the first half of next year.

"It's not the end of the world if we go into 2013 without a deal. In fact at this point I expect that," Zandi said. "If they freeze the withholding, I think they'd probably have until mid-January until (the budget impasse) starts doing some real damage."

But the damage would begin almost immediately for more than 2 million long-term unemployed Americans, according to the National Employment Law Project. A benefits extension has been caught up in the negotiations, meaning money is authorized only through the week ending Saturday.

"The check that's issued this week will be their final check," said Christine Owens, the group's executive director.

Comments
Longtime Pinellas County Commissioner John Morroni loses cancer fight at 63

Longtime Pinellas County Commissioner John Morroni loses cancer fight at 63

Eighteen-year Pinellas County commissioner John Morroni died Sunday night while fighting his third battle against cancer.Morroni, 63, announced in April that he was again undergoing treatment at Moffitt Cancer Center for a blood disorder kn...
Updated: 1 minute ago
John Morroni, longtime Pinellas County commissioner, dies at 63

John Morroni, longtime Pinellas County commissioner, dies at 63

Eighteen-year Pinellas County commissioner John Morroni died Sunday night while fighting his third battle against cancer.Morroni, 63, announced in April that he was again undergoing treatment at Moffitt Cancer Center for a blood disord...
Updated: 28 minutes ago
Lightning watch party tonight for Game 6

Lightning watch party tonight for Game 6

Tampa Bay Lightning fans can gather to witness the team's possible clinching of a Stanley Cup final berth tonight in downtown Tampa.The watch party for Game 6 in Washington starts at 6 p.m. at Curtis Hixon Waterfront Park.It will include three screen...
Updated: 1 hour ago
Softball: Scouting the Admiral Farragut vs. John Carroll semifinal

Softball: Scouting the Admiral Farragut vs. John Carroll semifinal

Admiral Farragut (17-5) vs. John Carroll Catholic (11-11)When/where: 4:50 p.m. Monday at Historic Dodgertown, Vero BeachHow they got hereAdmiral Farragut defeated Naples St. John Neumann 17-0; defeated Bradenton St. Stephen's 3-1John Carrol...
Updated: 1 hour ago
Florida education news: Testing, zoning, and more

Florida education news: Testing, zoning, and more

TESTING: School's almost out for summer in Florida. At least the state testing season has concluded, this time without any significant widespread problems. Education commissioner Pam Stewart said more than 5 million computerized and paper exams ...
Updated: 1 hour ago

Sri Lanka storms, landslides kill 5, leave 1,000 displaced

Officials say heavy rains and lightning across Sri Lanka have left at least five people dead and displaced more than 1,000
Updated: 1 hour ago

Pregnant woman, her father critically injured in shooting

Authorities say a street shooting in Philadelphia has left a pregnant woman and her father critically injured on the day she was married
Updated: 1 hour ago
Belgium goes to World Cup without Nainggolan

Belgium goes to World Cup without Nainggolan

Belgium left midfielder Radja Nainggolan out of its World Cup squad despite a standout season with Champions League semifinalist Roma
Updated: 1 hour ago

Medical teams sent to south India amid deadly virus outbreak

Officials say a deadly virus has killed at least three people in south India, and medical teams have been dispatched to the area amid reports that up to six other people could have died and others are ill
Updated: 1 hour ago

At least 2 dead in church van wreck in North Carolina

At least two people have died and 11 others have been hurt in a wreck involving a church van in North Carolina
Updated: 1 hour ago