Jul 28, 2014

Fiscal Cliff: What Does It Means For My 2013 Paychecks?

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

Fiscal Cliff: What Does It Means For My 2013 Paychecks? Fiscal Cliff: What Does It Means For My 2013 Paychecks?

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.

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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.

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.

Check in with some local financial planners for advice:

Edward Jones - Financial Advisor: Tracy L Burt

  • 1255 N. Ankeny Blvd., Ankeny

Iowa Financial Partners

  • 2501 S.E. Tones Dr., Ankeny

One Source Tax & Accounting

  • 210 N.E. Delaware Ave., Ankeny

Or any of these other financial planners or accountants found in the Patch directory.

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.

"The reality is, the vast majority of Americans do live paycheck to paycheck and that tax refund is their most significant payday of the year," said Bob Meighan, vice president of TurboTax, an online tax preparation service.

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