Don't let your January paychecks make you too optimistic

Whether or not we go over the fiscal cliff, we’re looking at a slew of brand-new taxes and costly regulations coming up in the next couple of years, largely courtesy of ObamaCare, that are going to put a sizable damper on our economy. Yet another aspect of all of this governmental procrastinating on a fiscal-cliff deal, however, is all of the accompanying uncertainty about which tax increases and spending cuts we’ll actually be looking at; ergo, says the AP, don’t let your first January paychecks lull you into a false sense of security.

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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. Otherwise, taxpayers could get hit with big tax bills, and possibly penalties, when they file their 2013 returns.

And the worst part of this is, it’s looking increasingly likely that we are going to go over the fiscal cliff. Obama and the Democrats’ refusal to make any sort of good-faith negotiations or concessions makes it increasingly apparent that everybody’s tax rates going up across the board is something they really don’t have that many qualms with, as Sen. John Barrasso explained this morning:

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Mr. Barrasso, Wyoming Republican, said on “Fox News Sunday” that the White House isn’t interested in finding a solution to avoid having the American economy go over the “cliff” — the automatic tax increases and spending cuts that kick in in 2013 if Washington lawmakers can’t reach a long-term budget deal.

“I think the president is eager to go over the cliff for political purposes,” Mr. Barrasso said. “I think he sees a political victory at the bottom of the cliff.

“He gets all this additional tax revenue for new programs; he gets to cut the military, which Democrats have been calling for for years, and he gets to blame Republicans for it,” Mr. Barrasso said.

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Beege Welborn 5:00 PM | December 24, 2024
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