Most of the conversation around the expiration of the 2001 and 2003 tax cuts has circled around how it would affect the top brackets, since the President’s budget calls for extending the tax rates for the bottom brackets.
We’re glad that discussion is taking place. But, considering that it’s almost November and Congress still hasn’t passed ANYTHING, it’s probably important to talk about what will happen if all of the taxes go up. Most people will operate under the assumption that it won’t affect them right away, but they’re in for some serious sticker shock come January due to changes in withholding rates.
Bloomberg has a great story discussing the repercussions, “Employers in U.S. Start Bracing for Higher Tax Withholding“:
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 semi-monthly 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 semi-monthly paycheck.
That $200 per paycheck is real money. Let’s hope that Congress has the foresight to recognize the impact.