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Fiscal Cliff: What It Means For My 2013 Paycheck?

The financial deadline looms in Washington, with no deal yet made. Check this primer, and share your questions and thoughts.

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

On Dec. 31, tax cuts dating to the George W. Bush presidential term are scheduled to expire, and President 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 withholding for many workers would change, leaving them with less take-home pay in the new year.

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

 

Maria Doyle December 30, 2012 at 04:08 PM
Thanks for the explanatory articles on the fiscal cliff. My mind tends to shut down when I read about these topics until my tax accountant told me exactly what it would mean to my taxes - I am self employed - and it has a huge impact. I find that your articles are very good for those of us who need to know about this, but don't necessarily understand it easily. Thank you!
Pete N December 30, 2012 at 06:12 PM
Thanks Obama and his supporters. Have you read about the multi-billion dollar raises Obama just snuck in for his friends? Shame
Matt December 30, 2012 at 07:36 PM
The president just gave raises to his friends. He owns a company now? Whats the name of this company and what do they do? Could it be that the Gop doesn't want there personal ATM the Koch brothers to pay more in taxes. Is that why they haven't had an agreement yet?
Pete N December 31, 2012 at 12:20 AM
Look into it Matt, no he doesn't own a company he was never that smart. But he was sneaky enough to push almost 11 billion dollars in raises through for his friends including Joe Biden.

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