Washington lawmakers’ late hour escape of the “fiscal cliff” means most in Southwest Colorado likely will escape the harshest impacts of the proposal.
However, local residents may notice that their first paycheck of the New Year could be inaccurate because the negotiations came down to the wire.
The Internal Revenue Service typically distributes withholding tables to employers at the end of November that reflect changes to the federal income-tax rate, but no tables have been sent for the New Year, said Mark Betts, payroll director for ASAP Accounting & Payroll Services Inc. in Durango.
“Most likely, everyone’s paychecks are going to be inaccurate until the IRS can distribute actual withholding tables,” he said.
It’s up to the employer and the computer payroll system they use to determine how to fix the error later in the year, he said.
Employees should be prepared to take home 2 percent less pay in their checks this year as the Social Security payroll tax cut expires. President Barack Obama initially included the tax cut extension in his fiscal cliff negotiations, but it has not been included in recent proposals.
The tax cut was intended as a temporary stimulus in 2011 and 2012. The rate went from 6.2 to 4.2 percent for employees and from 12.4 to 10.4 percent for self-employed people.
Individuals with income of $400,000 or higher and households with income more than $450,000 likely will pay more. Officials, as of late Monday, had agreed to let tax rates for the highest income earners to rise from 35 percent to 39.6 percent. The exclusion amount for estate and gift taxes was not lowered from its current $5 million, but the tax rate will increase from 35 percent to 40 percent.
Lawmakers also appear to have agreed to prevent the Alternative Minimum Tax from expanding.
The minimum tax was established in 1969 to make sure high-income Americans paid income tax, but the threshold was not indexed for inflation, and it would have affected millions of Americans it was never intended to if lawmakers didn’t pass a “patch.”