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What's the Fiscal Cliff to My 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 December 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.

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.

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DD December 30, 2012 at 08:57 PM
This is just the beginning! Wait until the Obamacare taxes start hitting us on top of this....thank you all you Obama supporters...you wanted change? You got it!
Pam Hatzlhoffer December 30, 2012 at 09:07 PM
We are going to be screwed all the way around..........The people wanted this...they got it!!!! I CAN complain because I DID NOT vote for him!!!!! The others who did......LIVE WITH IT and DON'T COMPLAIN!!!!! YOU ASKED FOR IT!!!!!!!!!!
BobDee December 30, 2012 at 11:56 PM
Simply put...The fiscal cliff means...less for you, more for them.

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