Effective January 1, 2018, and due to the new individual income tax rates created by the Tax Cuts and Jobs Act (Act), many employees will now see an increase in their take-home pay per paycheck.
Since January 1, 2018, employees around the U.S. have seen an increase between a few dollars to a couple hundred dollars in each paycheck. Each employee has a unique set of circumstances, which will impact the amount of increased take-home pay they will receive.
The pay increase for many employees that take the standard deduction on their individual income tax return will be simple to calculate using the revised withholding tables issued by the Internal Revenue Service (IRS). However, for employees that itemize their deductions, take the child tax credit (doubled under the ACT), have a few withholding allowances, have increased health insurance premiums, and/or pay higher state taxes, the tax savings calculation may involve a discussion with a Certified Public Accountant (CPA). This discussion will enable the taxpayer to minimize either under or over-withholding federal income taxes. Taxpayers should also contact their CPA if they receive raises and/or bonuses due to U.S corporations taking advantage of the reduction in the corporate tax rate also implemented as part of the Act. Such increases in pay may put taxpayers in a higher tax bracket, which may affect future tax planning.
Employers have until February 15, 2018 to incorporate the new withholding rates into their payroll system, resulting in certain employees not seeing an increase in take-home pay for their first few paychecks issued in 2018.