IRS rolls out new tax tables for promised bigger paychecks
WASHINGTON — Taking the first concrete step toward the Republican tax plan’s promise of fatter paychecks for millions, the Trump administration on Thursday issued new guidelines for how much employers should withhold as taxes from workers’ pay.
The Internal Revenue Service published the new income-tax withholding tables to conform to the sweeping $1.5 trillion tax overhaul, the first major rewrite of the tax code in three decades, which became law last month and took effect Jan 1. The new law provides steep tax cuts for corporations and wealthy Americans while offering more modest reductions for most low- and middle-income families and individuals.
Businesses across the country must adopt the changes by Feb. 15. That means employees could start seeing the changes reflected in their paychecks next month, the IRS said. President Donald Trump and the Republican architects of the tax plan have deflected criticism of the unpopular legislation, insisting at every turn that Americans will come to love the new law when they see their heftier paychecks next month — with less money withheld in anticipation of lower income taxes.
Trump and the Republicans are counting on the tax-cut law, the first significant legislative achievement of his presidency, to ensure the GOP retains its majorities in Congress in this year’s elections.
The new guidelines adjust how much income tax must be taken out from employee paychecks after taking into account exemptions claimed by employees on their IRS Form W-4, filed with their employers to help determine withholding.
The move should translate into more take-home pay for about 90 percent of American workers, Treasury Secretary Steven Mnuchin said in a statement.
Individual taxpayers aren’t required to make any changes to their Form W-4 right now. But the IRS expects that many taxpayers will have to do so later this year, when the agency releases a revised version of the form.
The IRS also plans to release a new tax withholding calculator on its website late next month to help individual taxpayers determine the correct amount of withholding.
Nonpartisan tax experts project that the law will bring lower taxes for the great majority of Americans, though not all.
Reduced tax rates don’t necessarily mean a lower tax bill for 2018. The new law is complicated. There are significant limitations on long-cherished deductions, such as the federal deduction for state income, property and sales taxes. There are new tax credits while other mainstays — like the $4,050 personal exemption — are gone. The standard deduction is doubled, to $24,000 for couples, but that means it no longer makes sense for many people to itemize and claim other deductions.
That also means employees can’t assume that the new, lower withholding rates will cover everything they owe Uncle Sam for this year. Taxpayers won’t file their 2018 returns until next year, following normal procedure.