MINNEAPOLIS -- The first tangible effect of the federal tax overhaul for most American earners will be a boost in take-home pay, which should begin in the next few weeks.
The IRS this week released the 2018 withholding tables that employers use to decide how much of your pay to send to Uncle Sam. The new tables reflect cuts in income tax rates and other changes.
"You have to pay your taxes as you go along, and the tables determine what should be taken out so you don’t have to figure it out yourself," said Todd Koch, of JAK and Co. Certified Public Accountants.
"And that table is based upon how often you’re paid, how much your paid, and how many exemptions you have."
Employers have until February 15 to incorporate the new tables into their payroll systems, and after that, about 90 percent of earners will see an increase in net pay because a lower percentage of pay will go to federal taxes.
Exactly how much each person sees will vary, based on how many dependents or allowances they claim on their W-4 Certification form when they're hired.
"The standard tax answer to every question is 'It depends' because every person is unique and everyone’s situation is unique," Koch remarked. "For example, my situation is different than other people because my children are grown. Other people are just starting their families."
There are several online take-home pay calculators if you want a sneak preview of how your paycheck will change under the new tax rules.
A recent sample calculation by USA Today showed that a single person with a $50,000 salary could expect to bring home an extra $96 every two weeks, or about $2,500 more take-home pay per year.
You don't have to do anything to get that bump in take-home pay. It will happen seamlessly as employers apply the new withholding tables.
Koch advised waiting until the changes go into effect, compare your new pay stubs with the old ones, to see exactly how much less is being taken out of your check and how much you're getting to keep.
He said some people will want to revisit their W-4 certification forms with their employers, if they're worried about taking too much of a tax hit next spring. The idea of the W-4, the form you fill out when you're initially hired, is to guess how much you'll owe in taxes.
"Many clients really like having that refund at the end of the year, and the withholding tables are really meant to give you the proper tax, which mean you wouldn't have a big balance due, but you also wouldn't have a big refund," Koch explained.
The tax overhaul made some fundamental changes in exemptions, child care credits and standard deductions. Some higher earners are already concerned that they'll be hit with a huge tax bill when they do their 2018 tax returns in the spring of 2019,
Those persons may be interested in changing their W-4 form, which allows employees to voluntarily withhold extra money from their paychecks as a precaution. Others may want to change their allowances on the W-4 form, to receive more take-home pay.
"After the withholding tables have been in use for a while, it would make sense to look to see if you should increase or decrease the number of exemptions you have on your withholding certificate, or you could also put on there that I want more withheld than what the table says."