Expiring tax breaks could slim paychecks
Employers are starting to warn their workers to prepare for slimmer paychecks if Congress fails to approve an extension of Bush-era tax cuts, Bloomberg reported.
“I’ve been doing payroll for probably close to 30 years now, and never have we seen something like this where it gets that down to the wire,” said Dennis Danilewicz, who manages payroll services for about 14,000 employees at New York University’s Langione Medical Center. “That’s what’s got a lot of people nervous. All we can do is start preparing communications with a couple of different scenarios.”
Lawmakers won’t start debating whether to extend the cuts, which expire Dec. 31, until after the Nov. 2 elections. Because it takes weeks to prepare withholding schedules, the Internal Revenue Service will probably have to assume the cuts will expire and direct employers to increase payroll deductions starting Jan. 1, experts say.
President Barack Obama and most Democrats want tax cuts extended for middle-income earners but ended for the wealthiest Americans, the top 2 or 3 percent of earners.
Republicans want tax cuts extended for everyone, arguing that an increase makes little sense as the economy recovers from the worst recession since the 1930s. Tax cuts went into effect in 2001 and 2003.
If Congress fails to act, income tax rates will revert to higher levels dating from June 2001. For a married couple with an income of $80,000, that would drain an extra $221.48 in withholding from a semimonthly paycheck, according to calculations by the Tax Institute at H&R Block.
Married individuals earning $240,000 a year would lose an additional $557.78 to withholding in a single semimonthly paycheck. The institute calculated federal tax rates for single-income earners and married taxpayers without children.
Allowing the tax cuts to expire, even temporarily, would decrease workers’ disposable income and could curtail the consumer spending that accounts for about 70 percent of the economy, said Alec Phillips, a Washington, D.C.-based economist at Goldman Sachs Group Inc.
“The longer the expiration lasts, the more significant the impact will be,” he said.