The first paychecks of 2018 will
be dispatched soon, but it may be weeks or months before taxpayers and payroll
processors know how the new U.S. tax laws will affect your take-home pay.
The Internal Revenue Service said
it expected to issue guidance in January on how much in taxes employers should
withhold based on the new tax rates. Employers and payroll services would then
implement those changes starting in February.
You might not even notice when it
happens because the effect on your paycheck could be relatively small,
depending on your income and your tax situation.
“When the taxes are reduced by 1
to 3 percent, that’s not going to be a huge noticeable difference. It’s not
going to be hundreds of dollars,” said Pete Isberg, vice president of
government relations at ADP, the largest payroll processor in the United
States, servicing the paychecks of one out of every six workers.
A difference of $1,000, for
instance, would be less than $40 a pop for a worker paid biweekly.
Your paycheck is not actually a
clear indicator of whether your overall taxes have gone up or down because of
the new tax law. There may be other factors in your tax situation - such as
owning a property or having multiple children - that could affect how much you
owe Uncle Sam at the end of the year.
Be prepared for tax uncertainty
until you do your taxes for 2018 a year or so from now. You cannot even
estimate your taxes until tax professionals and do-it-yourself services like
TurboTax update their software. And that cannot happen until the IRS releases
the new withholding tables and issues more guidance on the specifics of other
tax changes.
“We will be ready to help our
customers. We just need more information,” said David Williams, executive
director of the Intuit Tax and Financial Center.
WAITING FOR W-4 FORMS
You may be tempted to get a jump
on the IRS and change how much tax is taken out of your paycheck by adjusting
your W-4 form, but that may be premature, warned Isberg.
The IRS said in its last note
that it would be attempting to work with existing W-4 forms for now.
The standard federal W-4, which
all employees fill out, is based on the notion of “allowances,” which you could
adjust based on your personal situation.
In the past, a single person with
three children and a home in a high-tax state like New York might have listed
themselves as married and claim one allowance per person, plus a few extra
because they were likely to itemize their deductions and owe less. A married
person with a freelance spouse who owes quarterly taxes might have listed
themselves as single to have enough taken out to cover both of them.
The goal of people adjusting
their withholding was to come as close as possible to paying the correct amount
of tax - rather than owing money at the end of the year or ending up with a
giant refund.
But it will all be different math
for 2018.
“For first few weeks of January
stay put, and see what the IRS comes out with,” said Isberg, who also cautioned
that employees should keep an eye on tax changes at the state level.
Above all, do not panic, said
Farsheed Ferdowsi, president and CEO of Inova Payroll, which handles paychecks
for more than 3,000 companies.
“When you have changes in taxes,
it usually goes a lot smoother than most people know,” Ferdowsi said. “If the
first (paycheck) is wrong, it catches up on the next one.”