The much debated Fiscal Cliff has left many companies uncertain over how to make out the paycheck for the employees. The U.S. government is still debating next year's tax rates and employers are baffled over the tax reductions in their staff's salary, reported CNN Money.
However, the Fiscal cliff deal has made very little progress and it is unlikely that any declarations revolving the issue will be made by next week, said CNN Money.
The Bush Tax cuts are scheduled to be terminated by the end of 2012, thus driving the 10 percent tax bracket to collapse. If the Bush Tax cuts expire, the highest income tax bracket will rise to 39.6 percent, capital gain rates will go up 5 percent and dividend rates will also go up, depending on the top income tax rate. Payroll tax holidays shall also expire, reported CNN Money.
Paychecks that are scheduled for early January will be holding on to the 2012 tax tables if nothing has been declared by then. Not many changes will be seen in take-home salaries if deductions are made according to the existing tax tables, reported CNN Money.
"They'll use what they have," Michael O'Toole, senior director of government relations for the American Payroll Association told CNN Money
The payroll tax rates were reduced to 4.2 percent in the past two years. In 2013, it is expected to go up to the initial 6.2 percent. This could mean less money making for the employees.
If the President's proposal is legitimized, income tax for high earners will shoot up and in that situation employers will have to moderate their pays and reduce their take-home salaries, reported CNN Money.
If a solution is not reached soon, the tax rates could shoot up tremendously for all the income levels. If this happens, the government will have to employ cuts of $1.5 trillion over the next decade, Mark Kogan, a lawyer in Washington D.C wrote in Polymic.
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