How much will your paycheck change as a result of the recently passed fiscal cliff deal in Washington D.C.?
The answer to that question depends not just upon how quickly your employer can incorporate the required changes in federal withholding tax rates, but also upon which set of instructions they received from the IRS as it reacted throughout the fiscal cliff debate. It’s quite possible that your actual take-home pay will change from paycheck to paycheck for the next several weeks as a result.
Political Calculations features a number of calculators based on each of the different possibilities – here’s a short guide to each of them, which might help explain why your paycheck looks the way it does as we go into 2013:
This tool is based completely on the federal income tax withholding rules for 2012, which your employer might have stuck with into 2013 because of the IRS’ very late changes for 2013. At the very least, this calculator provides the baseline by which you can see how each of IRS’s various withholding tax schemes has changed your paycheck since 2012.
The IRS did notify employers back in October 2012 that Social Security taxes would be increased by 2% of your pay to restore the 6.2% flat tax rate that last applied in 2010. But because the IRS didn’t notify employers of any changes to make for year-over-year inflation, this tool also shows what your take-home pay would look like if 1970s-style bracket creep was once again the law of the land.
Late on December 31, 2012, the IRS rushed out new withholding tax instructions that fortunately would account for year-over-year inflation, but unfortunately would re-impose the income tax rates that last applied in 2001, in addition to Social Security’s 2% payroll tax hike. This tool shows what your paycheck would look like if no deal on the fiscal cliff had been struck, or what it might look like if your employer got this memo from the IRS, but not the next one before cutting any paychecks….
This final version reflects the results of the fiscal cliff deal that was signed into law on January 3, 2013. The IRS has given U.S. employers until February 15, 2013 to implement this version of its withholding tax rates for 2013, so its possible that your paychecks might look like one of the previous versions listed above until then!
Hopefully, our national politicians in Washington D.C. will stop monkeying about with the tax code long enough so we can know how much money we can actually keep out of our paychecks for a while.
Source: Lawrence Berkeley Laboratory