Salt Lake City Accountant
LOOMING DEADLINES
Effective January 1, 2013:
• ▪ The Bush-era tax cuts, extended by the Tax Relief, Unemployment Insurance
Reauthorization and Job Creation Act of 2010, expire;
• ▪ Across-the-board spending cuts take effect under the Budget Control Act of
2011;
• ▪ The employee-side payroll tax holiday ends;
• ▪ More tax extenders expire, joining the ranks of extenders that expired
after 2011.
Unlike 2010, when the Bush-era tax rates were extended for two years, any
extension of the Bush-era tax rates will most likely be accompanied by deficit
reduction measures. The extent of those deficit reduction measures is unclear
at this time. Among the likely potential revenue raisers are increased taxes on
higher-income individuals, accomplished through higher marginal rates and the
elimination or curtailment of certain tax preferences. Tax preferences that
might be targeted for repeal would most likely include those impacting business
taxpayers, such as certain oil and gas tax breaks and the last-in-first out
(LIFO) method of accounting.
One scenario calls for Congress approving an AMT patch and other popular
expiring extenders in the lame-duck session. The IRS maintains that it cannot
wait much longer to issue 2012 tax year forms without delaying the start of the
2013 filing season. Meanwhile, if the law isn’t changed, the Congressional
Budget Office estimates that over 20 million additional middle-income taxpayers
will become subject to the AMT without the so-called “AMT patch” for
2012. With 2012-focused tax legislation, however, there is also speculation
that Congress may buy itself some time by enacting a three-month extension of
Bush-era tax cuts (to be pro-rated over 2013). An extension of some sort may be
necessary because without it, wage withholding at the higher tax rates would
become mandatory for all taxpayers at all income levels.
Payroll tax holiday. Take home pay will also be immediately reduced if Congress
does not extend the employee-side payroll tax holiday, or enact some
replacement for it. The employee-share of OASDI is scheduled to return to 6.2
percent instead of 4.2 percent (up to the 2013 Social Security wage base of
$113,700). Proponents of an extension maintain that the economy cannot take the
hit on consumer spending that would result from a sunset of the payroll tax
holiday; opponents argue that it is temporary tax relief that the nation can no
longer afford.