New tax guidelines rely on workers to double-check their paychecks
Treasury Secretary Steven Mnuchin on Jan. 11 said the IRS will release a ânew withholding calculatorâ as part of the implementation of the GOP tax bill. (Reuters) January 11 at 2:13 PM
Millions of Americans will need to use a new Internal Revenue Service online calculator to ensure their new paychecks are accurate, Trump administration officials said Thursday as they issued guidelines for implementing the recently passed tax law.
The guidelines are necessary for businesses to calculate how much to withhold in taxes from employeesâ paychecks beginning as soon as next month. The White House said Thursday that businesses should make these adjustments by Feb. 15, part of the administrationâs push for millions of workers to see bigger paychecks as quickly as possible.
In rushing the process, the Treasury Department is asking companies to rely on outdated forms to help determine how much to withhold.
A senior IRS official said Thursday that Americans with simple tax situations are likely to get accurate paychecks next month. But many Americans, including those who tend to itemize their tax returns, will need to use the online tool to ensure they are not dramatically overpaying or underpaying their taxes. The online calculator will not be available until sometime next month.
If they find their paychecks are inaccurate, it will be incumbent on the employees to tell their employers to make corrections.With the Republicans' tax plan heading to President Trump's desk to be signed into law, just who will be getting his promised "Christmas present" of tax cuts and who won't? (Jenny Starrs/The Washington Post)
âThis will provide [Americans] with certainty so they are neither over-withheld or under-withheld,â Treasury Secretary Steven Mnuchin said Thursday.
[The final GOP tax bill is com plete. Hereâs what is in it.]
The new guidelines incorporate lower tax rates that were central to Congressâs December tax overhaul. Trump administration officials said that the guidelines should lead to bigger paychecks for 90 percent of all wage earners.
But these tax withholding decisions are based on tax forms Americans file with their employers, known as W-4s, that were written to apply to an outdated tax system. The Treasury Department and IRS are designing new W-4 forms that millions of Americans will probably be able to fill out later this year to make their tax withholdings more accurate in the future, but they will not be ready in time for the paycheck adjustments next month.
âWe had an existing form,â Mnuchin said. âWe had existing technology. We had to figure out how to fit this in this format.â
Senior Treasury Department officials said they expect employers to update their systems so that the new withholding tables go into effect by Feb. 15.
Americans typically have federal income taxes withheld from their paychecks, money that is aggregated over the course of the year to account for a personâs federal tax liability. When they file their tax returns, if their tax payments were too high or too low, they must account for the difference through a refund or payment. Currently, 76 percent of Americans who file their taxes receive a tax refund. A senior IRS official said he expected that level to fall just a bit next year to around 73 percent.
But Democrats have alleged the number could fall much more, accusing the White House of changing the tax tables in a way that will lead to Americans dramatically under-withholding their tax payments during the year, only to be hit with big tax bills next year. They have ordered a review by the Government Accountability Office to determine whether the new tax guidelines are accurate.
âRepublicans are using brute force and speed to implement a law that will deliver a financial blow to hardworking Americans all across the country,â Sen. Ron Wyden (D-Ore.) said in a statement. âI look forward to GAOâs independent review of these tables, which will expose whether the Trump administration is tampering with Americansâ paychecks, resulting in a whopping tax bill next year.â
Many Americans are likely to see changes and adjustments this year in their tax payments as the law goes into effect.
The law lowers tax rates, which is the primary reason Americans will see bigger paychecks next month, but it also limits or scales back tax deductions, changes that might not be realized until Americans file their tax returns.
For example, there is a new $10,000 limit on the amount of state and local taxes a household can deduct from federal income. There are also new limits on the mortgage interest deduction, and the child tax credit was expanded.
Senior IRS and Treasury Department officials told reporters Thurs day that they would be encouraging all Americans to proactively use a new IRS tax calculator in late February to help them determine whether their paychecks are accurate. If they determine they are paying too much or too little in taxes, based on the size of their family or other variables, they can direct their employer to make changes.
Americans will not be asked to input personal information such as names or Social Security Numbers into this online calculator, but they will need to input their income levels, family status and a number of other details.
The tax law is projected to add between $1 trillion to $1.5 trillion to the debt over 10 years because of a fall in revenue, something Democrats have decried but Republicans have said will help spur economic growth.
Employers must now rush to incorporate the new tax withholding tables into their payroll systems, a process that is expected to take several weeks.
The lower rates, an expanded standard deduc tion, and a larger Child Tax Credit are projected to reduce taxes for American workers and business owners by $180 billion in 2018, according to the Joint Committee on Taxation.
But that will be partially offset by new curbs on numerous tax breaks, including the elimination of personal exemptions and the new cap on state and local taxes.
These tax changes are all scheduled to expire after 2025, though Republicans have said they want to make them permanent.Source: Google News