Fiscal Cliff: What It Means For Your 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.

Tell us: Do you think President Obama and Congress will reach a "fiscal cliff" deal? How would a tax increase affect your spending? Share your thoughts in the comments below.

cynicinmarlboro December 30, 2012 at 04:54 PM
This is just my opinion, but if we reach the cliff, I believe the politicians who brought us there should go over it first! Withhold THEIR salaries and benefits that WE pay for as they are all not doing the job we elected them to do.
janedoe December 30, 2012 at 09:20 PM
None of these articles seem to get it right. The increase on the person in the example is actually about double what the article says, an extra 2% will be taxed due to the ending of the reduced payroll tax. The increase quoted above for the salaries in the 50k to 75k range would actually be $3400 to $4000, depending upon income. Not to mention the child tax credit is due to be cut in half from 1000 per child (direct reduction in tax) to only 500. For a family with 2 children, the family will now pay an extra 4400 to 5000. The large family with 5 children, who struggles even to feed them will now be paying, say an extra 6000 to 7000 in taxes per year which is an extremely steep increase. On top of which, there are scheduled to be cuts in federal assistance such as food stamps. This hypothetical family will likely have their children go hungry or their house go into foreclosure. The effect on large families is huge.


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