Smaller paychecks, late filing await taxpayers
New Year's joy could quickly turn into January sticker shock for taxpayers surprised by smaller paychecks and little chance of getting tax refunds in January.
The 2-percent payroll tax holiday will end, making paychecks shrink, and the later-than-normal first day to e-file tax returns will have those expecting tax refunds waiting longer than usual for them.
Knowing what will cause the sticker shock can help taxpayers prepare to make January less taxing.
PAYROLL TAX HOLIDAY ENDS DECEMBER 31
Taxpayers will see a 2-percent reduction on their paychecks starting in January. For example, workers earning $40,000 (average annual income) will see about $67 less in their monthly paychecks. This is because the Social Security payroll tax will return to its regular level of 6.2 percent, which was last applied in 2010.
According to Clarice Westall, enrolled agent at H&R Block, now is a good time to review paycheks, meet with a tax advisor and fine-tune withholdings for the new year.
LATE START OF TAX RETURN
The January 22 start of e-filing, more than a week later than in previous years, could mean the 18 million taxpayers who usually get their tax refunds before Groundhog Day might not get them until Valentine's Day. These early-season filers tend to get refunds 30-percent larger than the $2,700 average tax refund.
The IRS recently informed Congress that 60 million taxpayers could face an even longer delay if the alternative minimum tax isn't patched for tax year 2012. The IRS said these individual taxpayers might have to wait until March to file their tax returns.