Paychex Identifies Top Small-Business Questions about the Economic Stimulus Package

To help business owners comply with provisions of the $787 billion stimulus package, payroll-tax experts from Paychex, Inc.--a leading provider of payroll, human resource, and benefits outsourcing solutions for small-to-medium-sized businesses--have identified six top questions about the law from the company's small-business clients. The answers appear below and are posted on a section of the Paychex Web site devoted to the stimulus plan, www.paychex.com/stimulus.

Paychex selected the questions based on an informal survey of the company's payroll specialists, who work directly with clients across the country.

1. Should my employees complete a new W-4 to change their tax withholdings?

No, employees do not need to complete a new W-4. The Making Work Pay tax credit is automatic. However, individuals with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough is withheld from their paychecks to cover taxes on the combined income.

2. Will my employees owe money to the government at the end of the year because of the tax change?

People who receive more federal tax credit than they are entitled to will be required to pay it back as part of filing next year's 1040 personal tax return. Individuals who work multiple jobs or married couples who both work may want to increase the amount of their withholding from one or more of their employers by completing a new W-4 form.

3. When does the tax credit end?

The Making Work Pay tax credit is for the 2009 and 2010 tax years. As currently written, it will end with employees' last paycheck of 2010.

4. Will the credit affect state taxes?

In some states, this federal credit will impact state taxes. Alabama, Iowa, Missouri, and Oregon allow for a deduction in the state withholding calculation equal to the federal income tax amount withheld. So when the federal withholding decreases were implemented, that decreased the state withholding deduction for the employee, which results in an increase in that employee's state income tax withholding.

In Arizona, the withholding calculation is based on a percentage of federal income tax withheld. The federal withholding changes initially resulted in a decrease in an employee's state income tax withholding. However, Arizona legislators recently passed Senate bill 1185, and on Thursday, April 9, 2009 Arizona Governor Jan Brewer signed the bill into legislation. This bill essentially reverses the decreased withholding effect. Effective May 1, 2009, this legislation adjusts the withholding percentage for the remainder of the year and the first six months of 2010.

5. How will my employees know if their withholding is correct?

Employees who are unsure whether they are having enough money withheld should refer to IRS Publication 919 at www.irs.gov for guidance on tax withholding.

6. How will my employees get the COBRA credit?

Employers must identify their Assistance Eligible Individuals (AEIs)--those who experienced an involuntary termination between September 1, 2008 and December 31, 2009--and notify them of their right to elect COBRA coverage, as well as the availability of the 65 percent premium subsidy. The subsidy initially is paid by employers or other responsible entities, who are reimbursed by the federal government.

For additional information, visit http://www.paychex.com/stimulus, or clients can speak directly with their Paychex representatives.

About Paychex

Paychex, Inc. (NASDAQ:PAYX) is a leading provider of payroll, human resource, and benefits outsourcing solutions for small- to medium-sized businesses. The company offers comprehensive payroll services, including payroll processing, payroll tax administration, and employee pay services, including direct deposit, check signing, and Readychex(R). Human resource services include 401(k) plan recordkeeping, health insurance, workers' compensation administration, section 125 plans, a professional employer organization, time and attendance solutions, and other administrative services for business. Paychex was founded in 1971. With headquarters in Rochester, New York, the company has more than 100 offices serving approximately 572,000 payroll clients nationwide as of May 31, 2008. For more information about Paychex and our products, visit www.paychex.com.

SOURCE: Paychex, Inc.

Media: 
Paychex, Inc. 
Lisa Fleming, 585-387-6402 
Public Relations Program Manager 
lfleming@paychex.com