Workers are beginning to see more take-home pay as employers implement the new withholding guidelines from the IRS. The guidelines dictate how much employers withhold from pay for federal taxes. Employers have until Feb. 15 to make the changes.
Steven Mnuchin, Treasury Secretary, estimates that the new rules will mean more take-home pay for 90 percent of American workers.
How much extra money are we talking about? There are several factors to consider, such as workers’ income, how often they are paid and the number of withholdings allowances they claim on their IRS Form W-4.
Employers who were quick to make the change found anywhere from a few dollars to a few hundred dollars for their employees.
Wayne Love, who works in Spring Hill, Florida, got an extra $200 in his paycheck last week, that he said will help offset a $300 increase in the cost of his health insurance.
“I have heard time and again that the middle class is getting crumbs, but I’ll take it!” Love said.
Julia Ketchum, a secretary in Lancaster, Pennsylvania, said she was pleasantly surprised her pay went up $1.50 a week. She didn’t think her pay would go up at all, and that adds up to $78 a year, which she said will more than cover her Costco membership for the year.
Todd Anderson of Texas and his fiance, who are both educators, got an extra $200 in their paychecks combined that they plan to use to cover the costs of a second baby on its way.
The nonpartisan Tax Policy Center said a middle-income household would on average get a tax cut of $930 this year, lifting their after-tax income by about 1.6 percent. That increase won’t be reflected in their paycheck though.
Because lower tax withholding on paychecks is just a piece of a complicated set of changes to tax law that the GOP pushed through in December. What your employer withholds is based on an estimate of your tax obligation and that includes many complex factors.
As a result, taxpayers may find they are unintentionally over- or under withholding for their taxes.
Senator Ron Wyden, on the Senate Finance Committee, and Rep. Richard Neal, on the House Ways and Means Committee, both Democrats, asked the Government Accountability Office to analyze the new tables to make sure workers’ paychecks weren’t being systematically under-withheld, making paychecks bigger now but lead to a larger bill at tax time. Mnuchin, speaking at a White House press briefing, dismissed this notion as “ridiculous.”
Experts suggest that all taxpayers take a look the new IRS calculator when it becomes available later in February to ensure the correct amount is being withheld. They should update the information on their W-4 after the IRS releases a revised version later this year.
The IRS said the new withholding tables should produce an accurate withholding amount for people with simple tax situations. However, tax experts say those who itemize, have larger families or more complicated tax situations, may want to take a closer look.
“If they haven’t done it before, this is a really good year to talk to your tax professional,” said Pete Isberg, vice president of government relations for ADP, a payroll provider.
The IRS, payroll, and tax professionals have scrambled to react to the passage of the new tax law. The IRS says it plans to make further changes involving withholding matters in 2019. Many in the industry say they expect the IRS to update the W-4 form in 2019 to fully reflect the scope of the law.
Workers should anticipate a negative impact from the new withholding table if their pay remained the same, said Joseph Rosenberg, a senior researcher at the nonpartisan Tax Policy Center.
Someone who got a raise, however, may face a higher tax rate as a result. Some corporations have been handing out bonuses and wage increases in reaction to the passage of the law. A worker’s net pay may also fall if other factors that go into their paycheck changed, like an increase in health insurance premiums or higher state taxes.
Trump and the Republican backers of the plan have deflected criticism of the legislation, insisting that Americans will come to love the new law when they see their heftier paychecks.
Workers received the increase with mixed emotions.
“It’s tough to be upset about more money in my pocket,” said Jefferey Snively, an aerospace engineer who got a 4 percent bump in his last paycheck due to the lower tax rate.
He said that’s not a windfall and will not change his spending habits, but is a pleasant change. However, he thinks the tax overhaul wasn’t really about him or other workers, but more about corporations and the wealthy.
“I think the people this bill made the most difference for are the ones who needed at least,” he said.
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