Watch your paychecks for tax hits

Stephen Ohlemacher / The Associated Press /

Published Dec 23, 2012 at 04:00AM

WASHINGTON — Workers probably won’t feel the full brunt of next year’s tax increases in their January paychecks, but don’t be fooled by the temporary reprieve.

No matter what Congress does to address the year-end fiscal cliff, it’s already too late for employers to accurately withhold income taxes from January paychecks, unless all the current tax rates remain unchanged, which is an unlikely scenario.

Social Security payroll taxes are set to increase on Jan. 1, so workers should immediately feel the squeeze of a 2 percent cut in their take-home pay. But as talks drag on over how to address other year-end tax increases, the Internal Revenue Service has delayed releasing income tax withholding tables for 2013.

As a result, 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.

If employers don’t withhold enough taxes in January, they will have to withhold even more taxes later in the year to make up the difference.

The tax increases could be steep. If Congress fails to act, workers at every income level face significant tax increases next year as part of the year-end “fiscal cliff.”

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 every two weeks, that’s about $92 a paycheck, on average.

Someone making between $75,000 and $100,000 would get a tax increase averaging nearly $3,700. If the worker is paid every two weeks, that’s about $142 a paycheck.

Boehner holds out hope for deal

House Speaker John Boehner on Saturday said he’s ready to return to the bargaining table to avert the fiscal cliff, while President Barack Obama made no mention of the standoff in his weekly address.

With Obama traveling to Hawaii for Christmas, Boehner said the president needs to be more flexible to reach an agreement.

“Of course, hope springs eternal, and I know we have it in us to come together and do the right thing,” said the Ohio Republican in the party’s weekly radio address.

— MarketWatch

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