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The Fiscal Cliff and Your Paychecks

Find out how America going over the "Fiscal Cliff" might impact your wallet in 2013.

With Christmas 2012 over, one reality check is that the looming "fiscal cliff" deadline that's just a few days away.

On Dec. 31, tax cuts dating to the George W. Bush presidential term are scheduled to expire, and President Barack Obama and congressional leaders have not reached a compromise.

Of course, that means tax bills would increase for many middle- and upper-class taxpayers. And that means paycheck withholdings for many workers would change, leaving them with less take-home pay starting in the new year.

Apparently, though, there will be no immediate change in withholding tables, while the situation remains unresolved.

According to John Tuzynski, the IRS’ chief of employment tax policy, employers should continue to use 2012 withholding tables and personal exemption amounts until further notice.

And cnbc.com reported that employers are planning to withhold income taxes at the 2012 rates, at least for the first one or two paychecks of the year, said Michael O'Toole of the American Payroll Association.

However, a caveat: If employers don't withhold enough taxes in January, they will have to withhold more later in the year to make up the difference. Otherwise, taxpayers could get hit with big tax bills, and possibly penalties, when they file their 2013 returns.

If no compromise is reached by the president and Congress, the hit will be noticeable in many workers' paychecks.

A taxpayer making between $50,000 and $75,000 would get an average tax increase of $2,400, according to the Tax Policy Center, a Washington research group. If the worker is paid biweekly, that's about $92 a paycheck.

About 75 percent of taxpayers got tax refunds in 2012, averaging $2,707, according to the IRS. And many people rely on tax refunds to pay bills or make major purchases.

"The reality is, the vast majority of Americans do live paycheck to paycheck and that tax refund is their most significant payday of the year," said Bob Meighan, vice president of TurboTax, an online tax preparation service.

See Also:

Fiscal Cliff: Do the Tax Hikes Worry You?

OK, Temple Terrace, are you worried about what will happen if a deal isn't made? Share your thoughts in the comments section.

 

 

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