By John L. Duoba, Business Owner's Toolkit Staff Writer

I think we can all agree that everyone likes to see his or her tax bill cut. And, thankfully, Congress and the president have obliged by enacting a sweeping cut of federal income and estate taxes on June 7, 2001.

But since no good deed goes unpunished, small business owners need to be aware of the disruptive impact these cuts will have on your day-to-day operations, specifically how the rules for withholding income taxes from employees have changed.

While it is true that the bulk of the tax cuts phase-in sometime years down the road, there have been retroactive changes to this year's income tax rates.

Most people are aware of the rebate checks--arriving sometime during July through October--that will be sent to those who paid taxes in 2000. Depending on your filing status and previous tax bill, you could get a rebate of between $300 and $600. This figure represents the dollar difference when the first tax bracket is lowered from 15 percent to 10 percent on the first $6,000 of income.

That part's easy--just cash the check when it arrives. Now for the hard part.

The other tax brackets were retroactively changed as well, but this won't be covered by a rebate check. Which means that the amount of withholding that you are required to take out of every employee's check is changing, effective July 1, 2001.

Just for that six-month period between July 1 and December 31, 2001, you must use special withholding rates that will deduct less money in taxes to make up for the retroactive cut. This way, the government won't be holding on to your tax cut until the following year when you file your annual tax return.

So, technically, workers are getting an immediate tax cut, but doing payroll will now cause an immediate headache--especially if your pay periods straddle the effective changeover dates for these special withholding rates.

But to help alleviate that potential headache, we posted the new tables of withholding rates for July-Dec 2001 and Form W-4 for 2001 in our Tools section. There, you'll find multiple ways to figure withholding amounts and instructions to help you along.

So keep your eye on the mailbox and get that rebate check to the bank. You may need it to make up for the time lost manually refiguring every worker's withholding, just for 6 months, before a new set of rates kicks in for 2002, and then again after that in 2003, and. . .

And keep an eye on this web site as well, because we'll give you the latest in total know-how for your small business.

Related items:

New Tax Cut Package Is Mixed Blessing for Small Business Owners

New Estate Tax Changes Will Confuse Business Owners

New Tax Cut Helps Small Business Owners Save for Retirement

Congress Sends Tax Cut Bill to President

House Votes to Repeal Estate Taxes

House Approves Tax Cut Plan; Senate Action Likely in May