As Fiscal Cliff Looms, Employers Still Waiting for IRS Withholding Guidance

December 07, 2012

If the fiscal cliff cannot be averted by Jan 1 and new tax rates take effect, the Obama administration will need to make a decision about when to give payroll managers new guidance on how much to withhold from employees’ paychecks under the revised tax code.  Although the Internal Revenue Service typically issues annual withholding tables in late November, it has delayed issuing tables for next year in the hopes that Congress and the President can resolve tax policy in the next few weeks.  Tax tables dictate federal tax withholding, which allows workers to pay their annual taxes gradually rather than in a lump sum when they file their tax returns.  Significantly, without new tables, workers would not immediately feel the effects of tax increases that result from the expiration of large income and payroll tax cuts, but there would be a bigger bill by year end.  The last time tax rates were scheduled to go up in 2011, the IRS did not issue new withholding tables until the day Congress cleared a tax cut extension package on December 17, 2010.  Employers were given until the end of January to update their systems in response to the legislation, which contained some new provisions, including a payroll tax cut.