Your paycheck may shrink next year, at least temporarily, even if Congress decides not to raise taxes.
Why? Because the Internal Revenue Service needs time to prepare and distribute the tables used to calculate withholding taxes, and your employer needs time to put the new rates in place. So even though the tax cuts enacted under President George W. Bush don't expire until Dec. 31, the paperwork needs to be in place well before.
So, unless Congress votes by November to extend the Bush-era tax cuts, the IRS will advise employers to increase deductions from paychecks beginning Jan. 1.
President Barack Obama and most Democrats want the tax cuts extended for middle-income earners and to expire for the 2 percent of Americans earning more than $250,000 annually. Republicans want the cuts extended for everyone, saying raising taxes for any income bracket doesn't make sense during a recession.
When the current law expires, income tax rates will revert to their June 2001 levels. Rates are currently at 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent. If Congress doesn't act, they will revert back to 15 percent, 28 percent, 31 percent, 36 percent and 39.6 percent.
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