In the statement, the APA says that millions of Americans of all income levels could see the amount of taxes taken out of their paychecks increase by 50% in 2011. The rise in taxes would occur if four key pieces of legislation are not extended once they reach their expiration date of December 31, 2010: the Making Work Pay credit, the Advance Earned Income Credit, and the 2001 and 2003 tax cuts.
If the tax cuts that Congress enacted in 2001 and in 2003 are not extended, one consequence would be that the supplemental tax rate (the rate payroll professionals used to calculate the tax on bonuses, commissions, and other supplemental pay), will increase from 25% to 28%.
Other effects of the expiring tax cuts would include:
- The 10% tax bracket will be eliminated. The first $8,375 of taxable income of a single filer, now subject to a 10% tax rate, will be taxed at 15% — a 50% increase for Americans whose income, after subtracting the standard deduction and personal exemptions, is $8,375 or less.
- The tax credit parents can claim per qualifying child under age 17 will decrease by 50% per qualifying child from $1,000 to $500.
- The tax cuts reduced the tax burden on married couples by increasing their standard deduction to exactly twice that of a single person and increasing the amount of income subject to the 10% and 15% taxes to exactly twice that of a single person. These equalizers will disappear if the cuts expire.
- Many of the tax rates will increase, with the highest tax rate rising from 35% to 39.6%.
- Non-job-related educational assistance will no longer be a tax-free benefit. Currently employers may provide up to $5,250 per employee, per year in non-job-related educational assistance tax-free.
“All Americans stand to be impacted by these tax changes,” said Scott Mezistrano, CPP, senior manager of government relations for the APA. “We should all take a close look now to see how these tax changes will impact our 2011 take-home pay and plan to review and adjust our withholding as necessary at the beginning of the new year.”