Your paycheck probably just got a little bigger — here’s why

source
Reuters

  • Republicans’ new tax law went into effect at the start of January.
  • The Internal Revenue Service released new guidelines for employers withholding income tax from employees on January 11.
  • The new withholding changes should hit Americans’ paychecks soon, resulting in roughly 90% of workers getting higher take-home pay, per the IRS.

Most Americans are about to see a bump in their pay, even if their employer didn’t give them a raise.

The Internal Revenue Service released new guidelines on how much employers should withhold for taxes from their employees’ paychecks on January 11, meaning the second half of January was the first time many businesses used the guidelines.

As paychecks begin to roll out in February, many employees will see their take-home pay increase as their tax bill shrinks.

The guidelines, known as tax-withholding tables, tell employers how much to hold back from employees for income taxes based on criteria such as single or joint filing status.

For instance, the new tables show that for a single employee who makes $509 to $1,631 and is paid every two weeks:

  • The employer should withhold $36.70 plus 12% of every dollar over $509.
  • For example, if the employee makes $1,000 every two weeks, the employer would withhold $95.62 from each paycheck for taxes under the new system. (There can be adjustments based on a variety of factors and allowances.)

That amount is paid to the IRS in the employee’s name. At the end of the year, when an employee files his or her taxes, the filer either gets a return if too much was withheld or pays more if too little was withheld.

The new tables reflect changes made in the new GOP tax law to various rates, as well as adjustments to the standard deduction and other elements of the tax code. According to the IRS, the new tables should result in about 90% of workers getting an increase in their take-home pay.

In the end, other adjustments to taxes should result in roughly 80% of tax filers getting a cut in 2018, according to the nonpartisan Tax Policy Center. The size and percentage of Americans getting a cut should decrease over time, according to the TPC.

All employers should begin using the new table for computing how much to reserve from paychecks by February 15.

The IRS has scrambled to account for the new law’s adjustments. According to the IRS, all employees should double-check their withholding status using the IRS’ calculator to ensure the correct amount is being removed from their paycheck.

The only problem: The new calculator with updated tables won’t be available until later in February.

The withholding changes are just the start of the IRS overhaul of its filing forms to compute with the new law. For instance, the IRS is also developing new W-4 forms for employees.