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The fiscal cliff could cause payrolling confusion

Posted on December 6th, 2012 Read time: 1 minutes

The longer it takes Congress to find a solution to the fiscal cliff, the harder it will be for the nation's 27 million small businesses, the vast majority of whom are administering their own payroll, according to CNN.

The American Payroll Association warned that if Congress doesn't decide on tax rates by December 14, businesses may not have enough time to implement changes before they have to distribute the first paycheck of 2013.

Michael O'Toole, an attorney for the organization, described two worst-case scenarios to the news service. If Congress doesn't come to an agreement before January 1, members may apply new taxes retroactively. In scenario two, a last-minute agreement could prolong the current rate and Congress make a decision later next year. This could confuse payrolling software that only calculate on an annual basis, CNN explains.

O'Toole said the payroll tax holiday is the easiest situation to handle. While workers typically contribute 6.2 percent of their paychecks to taxes, they've been paying 4.2 percent for the past two years.

Payrolling will be especially daunting if the Bush era cuts expire and income taxes increase.

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