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Wednesday, November 3, 2010

Unless the Bush tax cuts are extended, more money will be withheld from employees paychecks on Jan. 1, 2011

Employee Benefit Adviser
By Editorial Staff
November 1, 2010
Official Presidential Portrait of United State...Image via WikipediaUnless the lame-duck Congress acts to extend the Bush-era tax cuts about to expire at the end of 2010, the income tax rates that will take effect Jan. 1, 2011 will return to the rates that were in effect a decade ago. The result: More money will be withheld from paychecks, according to an analyst at the tax publisher CCH.
“Ten years ago, we were facing the same situation: There was talk of upcoming tax cuts,” says John W. Strzelecki, CCH senior payroll analyst. The tax cuts – now known as the “Bush tax cuts” – were signed on June 7, 2001. The IRS subsequently issued new withholding tables, effective July 1, 2001, that incorporated the new tax cuts….
Seal of the Internal Revenue ServiceImage via WikipediaFast forward to today. The Bush tax cuts are nearing expiration at the end of the year. Under federal law, the tax rates that will be in effect Jan. 1, 2011, will be the rates that were in effect on Jan. 1, 2001.
Strzelecki says the IRS will likely issue new withholding tables sometime this month effective Jan. 1, 2011, based on the 2001 tax rates that are scheduled to go into effect at the start of the year. In addition, the IRS will incorporate the 2011 personal exemption amount —projected to be $3,700 …
What happens if the Bush tax cuts are extended? According to Strzelecki, the IRS will revise the withholding tables with an effective date that allows just enough time for the payroll industry to implement the changes, as they did in June 2001. The tables will take into account the fact that too much money was withheld from the paychecks that were issued prior to the tax cuts. …
“What it all boils down to is workers will see less take home pay beginning in 2011 …,” says Strzelecki.
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