Sometime in February, you might see a change in your paycheck,
courtesy of the new tax rules that were all over the headlines before the
holidays and which (mostly) took effect on Jan. 1. Here’s what’s going on and
what you can do about it.
What’s changing
The amount of tax withheld from your
paycheck will probably change at some point in February. The exact timing will
depend on when your employer switches to the new tax withholding tables and how
often you’re paid. The good news is you’ll likely see a little more money in
your check: The Treasury Department estimates 90% of wage earners will see an
increase in take-home pay due to the change.
“I think that on average, people will
see their paychecks go up by about 1% to 2%,” says Mike Sylvester,
a certified public accountant at Small Business Services CPA Group in Fort
Wayne, Indiana.
Why it’s happening
Taxes are a pay-as-you-go arrangement
in the United States. When you earn money, the IRS wants its cut as soon as
possible. That’s why employers withhold taxes from employee paychecks.
Form W-4, which you probably filled
out when you started your job, gives you some control over how much is withheld
from your check what you put on your W4 gets
funneled through something called withholding tables, which your company’s
payroll department uses to calculate exactly how much federal and state tax to
withhold. The amount is largely based on your wages, marital status
and the number of withholding allowances you claim on your W-4.
The recent tax overhaul changed a ton
of tax rules starting Jan. 1, including shifting the tax brackets, increasing
the standard deduction and eliminating personal exemptions. That meant the
withholding tables had to change, so the IRS reissued them on Jan. 11. It wants
employers to start using the new withholding tables no later than Feb. 15.
What to do about it
STAY CHILL
If you see more money in your check
in February, don’t start spending it, not even in your mind. After all, your
payroll taxes probably aren’t your whole tax picture, Sylvester warns. A new
$10,000 limit on the deduction for state and local taxes means that people in
high-tax states, for example, might be better off setting that extra money
aside until they see where the chips fall when they do their 2018 taxes, he
says. Under the new tax rules, you might lose some tax deductions — but you
also might move to a lower tax bracket.
THINK AHEAD
Last April, did you get hit with a
giant tax bill or, conversely, score an enormous refund? If so, now may be a
good time to make a better plan for your with holdings. If you don’t withhold
enough throughout the year, you might owe again when you file your return in
April 2019. If you withhold too much, you might get another refund — but you’ll
live on less of your paycheck in the meantime.
GATHER INFORMATION
Written By
TINA OREM
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