Dear Workforce What Impact Does the Stimulus Bill Have on Payroll-Benefits Administration

Dear Befuddled:

It’s natural to feel overwhelmed by the implications of the American Recovery and Reinvestment Act of 2009 (more commonly referred to as the “stimulus package”).

We expect that the new law will require employers to consider and implement multiple changes to their tax withholding, reporting and record-keeping procedures for employees. Here are the two most immediate changes you need to be aware of and take action on:

“Making Work Pay”: This provides workers a rebate/credit for the 2009 and 2010 tax years of the lesser of $400 for individuals and $800 for couples, or 6.2 percent of earned income.

The credit will be received by workers in their net paychecks through adjusted tax withholding tables no later than April 1, 2009. This means that you need to begin using these new tables (see IRS Notice 1036 and Publication 15-T) to process your payroll by this deadline. If you use an outside payroll provider, check with this vendor to ensure they’ve made the appropriate changes. At Paychex, we have implemented this change and are processing client payrolls using the adjusted tax tables.

Premium Assistance for COBRA Recipients: This allows COBRA beneficiaries to pay 35 percent of their premiums, with employers absorbing the remaining 65 percent (which are reimbursable through a credit on payroll taxes). In order to report and calculate subsidy amounts, and for employers to receive the credit, the IRS has redesigned Form 941, Employer’s Quarterly Tax Return, effective for the first quarter of 2009.

To make things more complex, there’s also a special 60-day election period for individuals who would be eligible for the assistance, but who weren’t enrolled in COBRA at the time the stimulus package was signed into law. What’s more, employers can choose to allow eligible individuals to be covered under a different plan offered by the employer than the one they were enrolled in prior to their involuntary termination.

And There’s More: You should also keep your eye on additional economic proposals under consideration, such as raising the federal minimum wage to $9.50 an hour by 2011 and allowing withdrawals from retirement accounts of 15 percent up to $10,000 without penalties.

Again, if using an outside payroll or benefits provider, make sure your vendor is actively following these changes and is ready to implement any new developments.

SOURCE: Marty Mucci, Paychex Inc., Rochester, New York, March 10, 2009

LEARN MORE: Among the wide-ranging effects of the federal stimulus bill are changes to COBRA provisions.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.