The IRS said it continues "to closely monitor the situation" and would "issue guidance by the end of the year."
Workers might not see the new income tax rates immediately reflected in their paychecks. The American Payroll Association is advising its members to continue to use 2012 withholding tables until they hear differently from the IRS.
The payroll service Payality Inc., with headquarters in Fresno County, Calif., is urging its 700 clients with 25,000 employees throughout the state to hold off on issuing paychecks and making direct deposits for January as long as they can in hopes that lawmakers and the Obama administration will strike a deal.
"We should have some direction by Dec. 31," company President Chet Reilly said. "Then we'll have to scramble as fast as we can."
In the meantime, Payality has programmed its software to assume the fiscal impasse won't be resolved and that the payroll tax will revert to 6.2 percent for employees from the 4.2 percent level of the last two years, he said.
"We think the likelihood of going off the 'fiscal cliff' is fairly large," he said. "We have it set that way and then we can dial it back" if an agreement is reached.
Adding to the uncertainty is the ability of Treasury Secretary Timothy F. Geithner, who oversees the IRS, to maintain the 2012 withholding levels even after tax rates rise.
Geithner could use the authority to prevent a short-term hit to the economy and potential confusion to employers if it appears a deal to prevent some of the tax rate increases was still possible even after the New Year's Eve deadline. There's precedent for such a move. In 1992, President George H.W. Bush ordered withholding levels temporarily set lower than federal tax rates to stimulate the economy.
Geithner has been cagey about whether he would take such a step.
"Don't over-interpret what that authority gives me," he told Bloomberg TV last month. "It does not give me the authority to . let (Congress) avoid making some decisions on rates and policy."
A Treasury spokesman had no further comment Thursday.
Freezing withholding levels would help for a short time, because it would prevent the loss to consumers of about $10 billion every two-week pay period in higher taxes, said Mark Zandi, chief economist at Moody's Analytics. But it is not a long-term solution to the hit the economy would take from a continued standoff.
Failure to prevent the tax increases and spending cuts, he said, would lead to drops in financial markets and remove incentive for businesses to invest. Most economists predict it would send the U.S. into another recession in the first half of next year.
"It's not the end of the world if we go into 2013 without a deal. In fact at this point I expect that," Zandi said. "If they freeze the withholding, I think they'd probably have until mid-January until [the budget impasse] starts doing some real damage."
But the damage would begin almost immediately for more than 2 million long-term unemployed Americans, according to the National Employment Law Project. A benefits extension has been caught up in the negotiations, meaning money is authorized only through the week ending Saturday. The labor market has been improving slowly. But unemployment, which was 7.7 percent in November, has remained stubbornly high.
"The check that's issued this week will be their final check," said Christine Owens, the group's executive director.