Senate Approves “Fiscal Cliff” Deal, Crisis Eased

WASHINGTON (Reuters) – The Senate moved the U.S. economy back from the edge of a “fiscal cliff” on Tuesday, voting to avoid imminent tax hikes and spending cuts in a bipartisan deal that could still face stiff challenges in the House of Representatives.

In a rare New Year’s session at around 2 a.m. EST (0700 GMT), senators voted 89-8 to raise some taxes on the wealthy while making permanent low tax rates on the middle class that have been in place for a decade.

But the measure did little to rein in huge annual budget deficits that have helped push the U.S. debt to $16.4 trillion.

The agreement came too late for Congress to meet its own deadline of New Year’s Eve for passing laws to halt $600 billion in tax hikes and spending cuts which strictly speaking came into force on Tuesday.

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Don’t Be Fooled By January Pay — Higher Taxes Loom

Seal of the United States Internal Revenue Ser...

Seal of the United States Internal Revenue Service. The design is the same as the Treasury seal with an IRS inscription. (Photo credit: Wikipedia)

WASHINGTON (AP) — Workers probably won’t feel the full brunt of next year’s tax increases in their January paychecks, but don’t be fooled by the temporary reprieve.

No matter what Congress does to address the year-end fiscal cliff, it’s already too late for employers to accurately withhold income taxes from January paychecks, unless all the current tax rates remain unchanged, which is an unlikely scenario.

Social Security payroll taxes are set to increase on Jan. 1, so workers should immediately feel the squeeze of a 2 percent cut in their take-home pay.  But as talks drag on over how to address other year-end tax increases, the Internal Revenue Service has delayed releasing income tax withholding tables for 2013.

As a result, employers are planning to withhold income taxes at the 2012 rates, at least for the first one or two paychecks of the year, said Michael O’Toole of the American Payroll Association.

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