From the March 2009 issue of Ceridian Connection.

The recent Making Work Pay legislation will greatly affect many employees across the nation, but it doesn't have to be anything other than business as usual for their employers.

"This legislation requires changes to be implemented in all U.S. employers' payroll systems by April 1, 2009," says Jill Barber, Ceridian compliance manager for regulations. "From Ceridian's standpoint, the updating of tax tables is quite a standard procedure. It's something we do every year at year-end. Ceridian customers should expect very little impact in that regard. Accurate tax withholding is a core process for our payroll solutions, and everything is in place to execute this change seamlessly."

Considerations for employers
Within their businesses, employers could well feel the effects of the legislation. "Any time there are changes to an employee's paycheck -- even positive changes -- you're likely to get questions," Barber says. "Proactive communication is always a good idea." For instance, the intent of the legislation is to return the full targeted amount of the tax credit to each employee by the end of the year. That means the Department of the Treasury has designed this year's withholding schedules so the annual benefit of the $400 or $800 payroll tax cut is reflected in income tax withheld from April 1 through the end of 2009."

Employees who don't have any federal income tax withheld as a result of low taxable wages (or as a result of having claimed exempt status) will not see any change in their withholding. However, such employees will be able to claim the "Making Work Pay" tax credit when they file their income tax returns in 2010. There are also some implications for employees who have claimed the Advanced Earned Income Credit. "Those employees may see that increase by a small dollar amount," says Barber.

Considerations for employees
For the most part, the "Making Work Pay" tax credit requires little action on the part of employees. But there is an exception. "The one area in which an employee might need to act," Barber says, "is if they have two incomes -- whether it's a couple with two incomes or an individual who has two jobs at different places. These employees run the risk of receiving the credit multiple times through withholding. And that means they'll need to pay back that money when they file their income taxes for the 2009 tax year. You might suggest to employees who fall into this 'two-income' category that they either decrease their allowances on their W-4 or adjust their withholdings. Otherwise, they might be in for a surprise on April 15, 2010."

As a public service to help employers and the public, Ceridian's LifeWorks Employee Assistance Program is making several resources available to help Americans cope with economic issues in 2009.
Resources for employees

Ceridian is well prepared to manage the "Making Work Pay" tax credit -- and also recent changes to the way employers manage COBRA benefits. Look for updates on the latest developments in future issues of Ceridian Connection and on this Web site.

For more information on the Making Work Pay tax credit, read this article from CNN Money.