"The rise in taxes is attributed to the expiration of four key pieces of legislation: The Making Work Pay credit, the Advance Earned Income Credit, and the 2001 and 2003 tax cuts, all set to expire on December 31, 2010," the group states.
Democratic leaders have vowed taxpayers earning less than $200,000 and couples making less than $250,000 will not see a tax increase next year, but so far they have failed to produce legislation.
The APA states all but 2 million of the more than 142 million tax returns filed each year will be affected if Congress allows these provisions to expire.
Senate Majority Leader Harry ReidHarry ReidWeek ahead: House to revive Yucca Mountain fight Warren builds her brand with 2020 down the road 'Tuesday Group' turncoats must use recess to regroup on ObamaCare MORE (D-Nev.) is expected to take up the 2001 and 2003 tax cuts enacted by President George W. Bush shortly after members return from the August recess. But it is unclear when the other tax measures will see action.
Without proper time to prepare, the Internal Revenue Service could have trouble notifying payroll agencies of any changes Congress made to the tax code.
"The big untold story is how the IRS has to adjust its entire publication printing schedule to accommodate the new [tax] changes," National Taxpayers Union executive vice president Peter Sepp told The Hill. "Once you get past September, early October, the IRS is not capable of reflecting the tax changes in the forms it's printing. They have to have all that stuff accessible and sitting in libraries on Jan. 1."
The IRS did not comment on the issue of timing. Other sources close to the IRS believe the turnaround time is short for software upgrades, but longer for printed publications.
"They need a good six to ten weeks lead time," Sepp said.
The APA states if the tax cuts expired on schedule, the 10 percent bracket will be eliminated, which equates to a 50 percent tax increase on the first $8,375 of taxable income; the $1,000 Child Tax Credit will be reduced by 50 percent, to $500; the marriage penalty returns; the supplemental tax rate, which payroll agencies use to calculate the tax on bonuses, commissions and other supplemental pay, increases from 25 percent to 28 percent; and non-job-related educational assistance, which can go as high as $5,250, will no longer be a tax-free benefit.
In addition, all marginal tax rates will reset to higher, pre-2001 levels. The Making Work Pay credit would vanish, which adds $34 in taxes per month to paychecks for individuals and as much as $67 for couples. And the Advance Earned Income Credit would go away, decreasing take-home pay by as much as $152 per month as taxpayers would have to file their tax returns at the end of the year to receive the benefit.
"All Americans stand to be impacted by these tax changes," APA government relations manager Scott Mezistrano said in prepared remarks. "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."
Unlike other tax changes, these measures affect paychecks, which means if Congress fails to act, workers will see a tax increase in their paychecks starting in January.