The Internal Revenue Service released guidance for employers about how much tax they should withhold from workers' paychecks in 2018 -- and said it would soon offer an online calculator employees can use to make sure the amounts are correct.
Companies have been awaiting details from the IRS after the sweeping tax overhaul passed at the end of last month that changes tax rates and brackets, increases the standard deduction and repeals personal exemptions. Employers should begin using the new withholding tables as soon as possible, but not later than Feb. 15, according to the IRS notice issued Thursday.
Republicans have promised that American wage earners will see bumps in their paychecks starting in February -- after employers have made the withholding adjustments. House Majority Leader Kevin McCarthy of California has said taxpayers should "check their check."
The IRS will release an online calculator by the end of February so taxpayers can ensure their paychecks are accurate, Treasury Secretary Steve Mnuchin said during a White House briefing on Thursday. Taxpayers who have more complicated tax situations, such as those who itemize deductions, are especially encouraged to check their withholding amounts, the IRS said.
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.
Mnuchin added that about 76 percent of taxpayers typically see withholding amounts that result in refunds at the end of the year and he doesn't expect that percentage to change under the new tables.
House Ways and Means Chairman Kevin Brady, R-Texas, said, "This is outstanding for families in Texas and taxpayers across the country." Nine out of 10 taxpayers "will see a boost in their take-home pay within the coming weeks," he said said in a statement.
Two congressional Democrats have expressed concern that the new tables would "systematically underwithhold income taxes during the 2018 tax year." That sort of move would boost workers' pay before the November congressional elections but could leave them "owing federal income tax when they file in 2019," according to a Jan. 8 letter to the Treasury Department from Sen. Ron Wyden of Oregon and Rep. Richard Neal of Massachusetts.
Mnuchin pushed back on those concerns Thursday, saying the IRS usually issues its withholding tables every January and the agency decided to wait until February to take into account the changes under the new tax system.
"Any claims that we are doing this for political issues are ridiculous," Mnuchin said.
Senior IRS and Treasury Department officials told reporters Thursday that they would be encouraging all Americans to proactively use the new IRS tax calculator in late February to help them determine whether their paychecks are accurate. If taxpayers determine they are paying too much or too little in taxes, on the basis of the size of their families or other variables, they can direct their employers to make changes.
Americans will not be asked to input personal information into this online calculator, such as names or Social Security Numbers, but they will need to input their income levels, family status and a number of other details.
Employers must now rush to incorporate the new tax withholding tables into their payroll systems, a process that is expected to take several weeks.
Information for this article was contributed by The Washington Post.
Business on 01/12/2018