American employees enjoyed an unexpected 2% pay increase in 2011 when the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 implemented a temporary Social Security payroll tax cut in January 2011. The payroll tax cut reduced the social security tax for working Americans from 6.2 to 4.2 percent – a 2 percentage reduction in the tax rate. This was a welcomed pay increase for millions of Americans.
We are now almost a year later and there is lot of rumbling going on in Washington about whether or not this tax cut should be extended into 2012. President Obama is proposing to extend the tax cut into 2012 but is being met with lots of resistance from the Republicans. President Obama predicts that if the tax cut is not extended, “the typical family’s taxes will go up $1,000 next year.” The squabbling in Washington is over whether or not this tax cut was successful at affecting job creation and if there are better ways to stimulate the economy. A vote in the Senate on this heated debate is scheduled for this week.
So when does the social security payroll tax cut end?
Without an agreement to extend this temporary social security payroll tax cut, it is scheduled to expire on December 31st.
Since the decision on this may or may not be made by the end of the year, it is a good idea for employers to be thinking about a communication plan for their employees. The possibility of this tax cut going away is very real, so it is only fair for employers to make employees aware and be prepared for this possible 2% tax increase.
What should be communicated to employees?
Information About the Tax Cut
Since many employees may not even be aware of this temporary tax cut, it might be good idea to give the history of why this tax cut was temporarily made, what percentage of their pay was impacted and where Washington is on the decision making process to extend it. This can be done by providing links to news stories and data about the tax cut.
How the Tax Increase Will Affect Them
From a planning and budgeting perspective, it may be helpful for employees to know how this tax increase will affect their net pay so they can begin preparing financially. This can be as easy as providing them with a formula and an example of how to calculate the tax increase at their pay rate so they can see how much less money they will be taking home.
2012 Pay Raises
This would also be a great opportunity to discuss 2012 pay increase projections for your organization. If pay increases have been budgeted, sharing that information with employees can at least offer some relief should that tax cut go away.
Budgeting Help
Many families are struggling financially, so providing employees with personal finance and budgeting resources to help them manage their money may be beneficial.
It is anyone’s guess as to whether or not this payroll tax cut will be extended into 2012, but regardless, employees should be made aware so there are no surprises when they open their paychecks after the first of the year. Employers should be sensitive to the employee perspective and do all they can to educate and prepare them for this possible 2% change in salary.
photo by: Fabricators of Useless Articles
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