Tax reform: IRS, Treasury take first step toward raising your paycheck
The Internal Revenue Service (IRS) and U.S. Treasury Department released new withholding guidance on Thursday, indicating that employees should see the tax reform changes reflected in their paychecks by next month.
“With this guidance, most American workers will begin to see bigger paychecks. We estimate that 90% of wage earners will experience an increase in their take home pay,” said U.S. Treasury Secretary Steven Mnuchin in a press release.
New withholding tables needed to be issued in order to reflect the changes to tax rates, tax brackets, the elimination of personal exemptions and an increased standard deduction under the new law, passed by the GOP in December. Employers and payroll companies will now be required to process and implement those changes.
Even though the new tables are out, the time it takes for employees to see the change reflected in their paychecks will vary. As previously reported by FOX Business, employers using a big payroll processing firm may have an easier time with the transition, while employees at small businesses or other companies may have to wait a bit longer for the changes to be fully implemented. How frequently employees are paid will also affect how quickly they see the benefits.
According to the IRS, it generally takes companies about a month to integrate new withholding guidelines.
The government is requiring employers to begin using the new guidelines as soon as possible, but “no later than Feb. 15.”
One of the big concerns payroll processors had about implementing the sweeping change to the tax system so quickly was adjusting forms. The IRS and the Treasury, however, said on Thursday that new withholding tables work with W-4 forms already filed with employers. In 2019, employees will need to file new W-4 documents.
By the end of February, the IRS will unveil a calculator to determine accurate withholding amounts on its website.