So how much extra cash will end up in your pocket now that payroll withholding tables are changing under the new federal tax law?
The answer, like anything to do with taxes, is it all depends on your situation. Some middle-income taxpayers could be looking at an extra $20 or $30 a week. Yet there's really no simple, clear-cut formula to figure this one out.
"It's not that intuitive," said Nathan Rigney, lead tax research analyst at the Tax Institute at H&R Block. "It's actually a convoluted formula."
Best bet: Keep an eye on your paychecks.
Taxpayers should begin seeing changes in the amount of money that's withheld for federal income taxes on their checks sometime in February. About 90% of workers should see some extra cash.
1) What kind of extra money can you expect to see in that paycheck?
Again, it depends. Do you have children? How much money are you making? How often are you paid? And how many withholding allowances did you claim on your W-4 form?
Take a married couple filing jointly with one wage earner making $90,000 a year. Assume that household has two children younger than 17. In this case, this taxpayer would see around $61 extra in each semi-monthly paycheck, according to Nathan Rigney, lead tax research analyst at the Tax Institute at H&R Block.
The withholding for federal income taxes dropped in this example to around $231 a check from about $292.
For the full year, the added take home would amount to $1,468.70 in 2018, compared with last year. A semi-monthly payroll amounts to 24 checks per year.
In this example, the family would be looking at a federal income tax refund of $2,008.94 for their 2018 return, compared with $780.64 in 2017. This example assumes that the tax filers would not itemize on a 2017 return and again won't itemize deductions in 2018.
Or take a single person with no children making $35,000 a year. In this case, the taxpayer would see nearly $32 more in a semi-monthly paycheck, according to Rigney. For the full year, the added take home amounts to $763 in 2018.
Employers should use the new 2018 withholding tables as soon as possible, but no later than Feb. 15, according to the Internal Revenue Service.
2) Why will some families with young children see bigger take-home amounts than singles?
Tax rule changes in 2018 under the reform package are fairly complex. But a key benefit under the new rules involves a tax break for families with children younger than 17.
Under the new law, the child tax credit was doubled to $2,000 per qualifying child beginning in 2018. To claim the credit on a 2017 return, the child must have been younger than 17 at the end of last year.
On 2017 returns, the child tax credit begins phasing out for married couples who earned more than $110,000 and for single filers with adjusted gross income above $75,000.
Under tax reform, though, more families with higher incomes will be able to claim the entire child tax credit on their 2018 returns.
Current W-4 forms reflect whether you qualify for the Child Tax Credit, as well as how many dependents you claim.
3) Why is my co-worker seeing a different kind of withholding change?
How much money is withheld for federal income taxes now depends on how you filled out a W-4 form. Typically, people fill out a W-4 when they take a new job, maybe when they get married or have a child, or more likely when they're stuck one year with a shockingly large income tax bill.
"Once employers begin using the new withholding tables, they will use the information they have on file for individual employees," said Brian Ashcraft, regional director for Liberty Tax Service.
The amount withheld toward federal income taxes depends on the number of withholding allowances that you've claimed, whether you've claimed child or dependent care expenses, if you're single and have more than one job, or if you're married and both spouses bring home paychecks.
A new W-4 form is expected to be released, perhaps by early spring, to reflect the new tax rules.
4) Will I need to fill out a new W-4 form later this year?
Maybe. You might want to actually increase your withholding at some point so that you won't owe too much money in 2019.
"I would recommend that anybody revisit your W-4," said Lisa Greene-Lewis, certified public accountant and tax expert with TurboTax.
The IRS is revising its tax withholding calculator at www.irs.gov by the end of February. Taxpayers can use this calculator to adjust their withholding once it is released.
Pay close attention to your 2017 return and see what you itemize in deductions — say property taxes, home mortgage interest, charitable contributions, deduction for interest on home equity loans and other deductions.
Beginning in 2018, new tax rules will go into place that could change how you handle those expenses on your tax return.
The standard deduction increases in 2018 to $24,000 for married couples filing a joint return — up from $12,700 in 2017. For singles the standard deduction increases to $12,000 in 2018, up from $6,350 for 2017.
Many people will likely no longer itemize starting with 2018 returns because of the higher standard deduction.
You'll no longer be able to itemize some expenses anyway. For example, interest on home equity loans will no longer be deductible beginning in 2018.
Beginning in 2018, there's a new $10,000 cap on deductions for a combined amount for personal property, real estate and state and local income taxes. Mortgage interest remains deductible. Mortgage interest paid on new mortgage loans will be deductible up to $750,000 (or for existing mortgages up to $1 million.)
TurboTax has an online TaxCaster, as well as an app, to help forecast your 2018 tax refund based on the new tax law.
Some people may have claimed a sizable amount of withholding allowances on their W-4 form to take into account their itemized deductions, said Rigney, of H&R Block. But the new tax rules might mean you need to make changes on a new W-4.
Remember, outdated information on a W-4 could lead to an inaccurate withholding and possibly mean that the taxpayer ends up owing taxes in 2019, said Ashcraft of Liberty Tax Service.
5) What's the tax withholding on my bonus check?
Bonuses are subject to a different withholding rate, if supplement wages are paid in addition to your normal paycheck.
But the good news is that the withholding rate on bonus checks is now 22%, not 25%, according to Greene-Lewis of TurboTax.
So on a $5,000 bonus check, the withholding would be $1,100 instead of $1,250.
On a $1,000 bonus check, the withholding would be $220 instead of $250.
Fiat Chrysler Automobiles, for example, confirmed it will withhold a flat 22% of all supplemental wages, which would include profit-sharing checks as well as the forthcoming $2,000 special bonus payment. Ford Motor confirmed that 22% rate, as well.
"People that get bonuses will see more money in that paycheck as well," said Greene-Lewis said.
Contact Susan Tompor: email@example.com or 313-222-8876. Follow Susan on Twitter @Tompor.
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