The failure of Congress to make a decision before its fall recess on what to do about the Bush era tax cuts could subject workers to a major tax hit in January.
That’s because the Treasury Department normally publishes the next year’s tax withholding tables for employers by mid-November, The Wall Street Journal reports. And if Congress takes no action before Dec. 31, the Bush tax cuts are slated to end for everyone.
Treasury has to release the tax tables early to give employers time to adjust their payroll processing systems before January.
Congress doesn’t reconvene until Nov. 15, and given the discord between Democrats and Republicans over taxes, there’s no guarantee anything will happen quickly.
President Obama wants to extend the tax reductions only for those with annual income of less than $200,000, while Republicans want to continue them for everyone. Some moderate and conservative Democrats in Congress have moved toward the Republican position, but it’s unclear how it will play out.
The Senate is scheduled to deal with several non-tax issues when it reconvenes and is expected to break for Thanksgiving soon afterward. That means a tax vote may not come until December.
So even if the tax cuts are extended, the Treasury will likely have to scramble to prevent the IRS from taking huge chunks of money that workers don’t owe.
"Things get very dicey after the first of December" former Treasury official Michael Graetz, now at Columbia University Law School, tells The Journal.
There is a good chance that Congress will compromise on the tax issue by extending everyone’s reductions for another year or two before making a definitive decision.
“The simplest solution this year would be to say ‘we have a struggling economy; we don’t want to raise taxes at all,’” Roberton Williams, a senior fellow at the Tax Policy Center, told Bloomberg. “It’s a compromise that would get things past the end of this year.”
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