Tax code impact on paychecks in February
A new poll says that President Trump’s approval rating is on the rise after a surge in the U.S. economy and shifting tax reform numbers.
Employers and payroll services across the nation are expected to begin implementing the new tax code in February.
Yet there remains a great deal of confusion regarding the looming changes and how they will impact take-home pay for individuals across the country.
Making matters worse, the Internal Revenue Service has issued only a minimal amount of guidance to employers and payroll companies regarding the new code.
The general consensus among experts however, seems to be that the changes will be minimal for most average wage earners.
“The majority of Americans aren’t going to negatively be impacted. Unfortunately, there’s still very little information surrounding it,” explained Financial Analyst Jeff White, of New York City-based FitSmallBusiness.com. “At this point, it’s been reported that most Americans will see very little change, likely a $5 to $20 increase per week.”
When will you notice a change in your pay?
At best, if everything moves without delay, workers may see a bump in pay in late February or early March, said Robert Basso, head of Advantage Payroll Services, the largest independent payroll, human resources and tax-filing processing firm in the New York region.
There are many things that need to happen prior to the new code being implemented, Basso explained, including the IRS writing regulations and issuing guidelines and procedures, which are then interpreted by accountants, HR departments, payroll firms and advisers.
The Treasury Department recently released the new tax tables, but there has not been any specific, detailed guidance regarding the new tax law, he said.
The tables indicate how much tax to withhold (or not withhold) from paychecks.
Employers are required to start complying with the new withholding tables by February 15.
Is a new W-4 required?
According to recent government statements, workers do not have to complete a new W-4 in order to take advantage of the tax changes this year.
However, the IRS is working on designing updated W-4 forms based on the new code, said Basso. Many workers will likely need to complete the updated forms for 2019.
The good news – for some
For the first few months of 2018, while the old tax code was still being applied to your pay, you were being taxed at the old income tax rate. Under the new tax code, less money may be taken out each of each paycheck, but it will depend on the individual’s circumstances.
All of which means that when you file your 2018 taxes in April 2019 you may get a larger-than-normal tax refund.
“We instituted the changes already, so it was only a few weeks of people not getting the new tax code applied, so the refund is not likely to be that large,” said Basso. “But about 40 to 55 percent of employers do not use outside payroll companies – many are little mom-and-pop shops.”
Should you adjust the amount of your federal withholding?
Most experts agree that it’s best to wait until the tax changes take effect before making any revisions to your W-4.
Once it becomes clear how the new tax code impacts your pay, it’s easier to make an informed decision regarding how to proceed.
“For those who see a change in their paycheck, whether small or large, they should presume the IRS has adjusted their withholdings to take into account their future refund,” said Mark Kohler, senior tax adviser at TaxSlayer. “If you see a change, we recommend leave it alone and enjoy the ride.”
If there’s no change in your paycheck, take a more active role in researching what your tax refund might be next year based on the new withholdings. The IRS has posted the new deduction tables here.
Based on what you determine you may consider adjusting your withholdings in order to have an increase in your paycheck now (which of course will mean a smaller tax refund at the end of the year).
Contact a CPA for assistance
Some individuals will see an increase in their paychecks, while others will see a loss, said White.
It all boils down to what your individual tax situation looks like. To help you navigate this first year of changes, consider working with a tax professional who can provide valuable expertise and insight.
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This article originally appeared on Credit.com.
Mia Taylor is an award-winning travel and finance journalist with two decades of experience. Her work has appeared on MSN Money, MSN Travel, TheStreet, MainStreet, TheSimpleDollar, Cheapism, KPBS (the San Diego affiliate of National Public Radio) and in Westways Magazine. In 2011, Mia was among a team of KPBS reporters who won the Walter Cronkite Award for Excellence in Journalism for an investigation into the salaries and perks of California county supervisors. She has also received multiple awards from the North American Travel Journalists Association. You can read more about Mia’s career and writing expertise at www.miataylorwriter.com. More by Mia Taylor