Tax bill begins delivery to American workers Bigger paychecks

By SARAH SKIDMORE SELL

AP Personal Finance Writer

The contentious tax overhaul is beginning to deliver a change that many will welcome – bigger paychecks.

Workers are starting to see more take-home pay as employers implement the new withholding guidelines from the IRS, which dictate how much employers withhold from pay for federal taxes. Those whose checks have remained the same shouldn’t fret – employers have until Feb. 15 to make the changes.

Treasury Secretary Steven Mnuchin has estimated that the new rules will mean more take-home pay for about 90 percent of American workers.

How much extra cash? It depends on several factors, such as workers’ income, how often they are paid and the number of withholdings allowances they claim on their IRS Form W-4 with their employer.

Those whose employers were quick to make the change welcomed the extra money – anywhere from a few dollars to a few hundred dollars.

Wayne Love, who works in managed care in Spring Hill, Fla., got an extra $200 in his paycheck last week, which he said will help offset a $300 increase in the cost of his health insurance.

“I have heard time and again that the middle class is getting crumbs, but I’ll take it!” Love said by email.

Julia Ketchum, a secretary at a public high school in Lancaster, Pa., said she was pleasantly surprised her pay went up $1.50 a week. She didn’t think her pay would go up at all, let alone this soon. That adds up to $78 a year, which she said will more than cover her Costco membership for the year.

And Todd Anderson of Texas and his fiance, who are both educators, got an extra $200 in their paychecks combined that they plan to use to cover the costs of a second baby on its way.

According to the nonpartisan Tax Policy Center, a middle-income household would on average get a tax cut of $930 this year, lifting their after-tax income by about 1.6 percent. That increase won’t be perfectly reflected in their paycheck though.

That’s because lower tax withholding on paychecks is just a piece of a complicated set of changes to tax law that the GOP pushed through in December. And what your employer withholds is based on an estimate of your tax obligation that includes many complex factors, but it’s not a perfect measure.

As a result, taxpayers may find they are unintentionally over- or underwithholding for their taxes if they don’t do some legwork.

Senator Ron Wyden, on the Senate Finance Committee, and Rep. Richard Neal, on the House Ways and Means Committee, both Democrats, have asked the Government Accountability Office to analyze the new tables to make sure workers’ paychecks weren’t being systematically underwithheld, which would make paychecks bigger now but lead to a bigger bill at tax time. Mnuchin, speaking at a White House press briefing, dismissed this notion as “ridiculous.”

Still, experts suggest that all taxpayers take a look the new IRS calculator when it becomes available later in February to ensure they are having the correct amount withheld. And they should update the information on their W-4 after the IRS releases a revised version later this year.

For most people though, no change will be needed.

The IRS said the new withholding tables should produce an accurate withholding amount for people with simpler tax situations. But tax experts say those who will still itemize, have larger families or more complicated tax situations may want to take a closer look.