You won’t begin to see the impact of the new tax law in your paycheck until at least February.
That’s because the Internal Revenue Service is still figuring out how to translate the law’s changes into workers’ paychecks. The main difference will be that the rate at which the federal government taxes your income is likely decreasing. How much it will change will depend on your income and the new tax brackets.
The seven new brackets are set at 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent of your income. The old rates were 10 percent,15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent. The law doesn’t change how much your employer will deduct for Social Security and Medicare.
“When the taxes are reduced by 1 to 3 percent, that’s not going to be a huge noticeable difference,’’ says Pete Isberg, vice president of government relations at ADP, one of the world’s largest payroll processors.
The tax law also eliminates the personal exemptions workers can take for themselves, their spouses and their children. These exemptions are listed on the W-4 withholding form you file with your employer. Those forms may eventually be changed, but the IRS says changes to the W-4s won’t happen right away.
IRS officials say they “anticipate” issuing initial tax guidance to employers and payroll processors in January and that the information will be designed to work with the existing W-4s that employees have already filed.
In the meantime, you will be taxed at the same rate you were in 2017.
It remains unclear just how quickly payroll departments and processors will implement the changes once new IRS tax tables are released.
“We’re ready and waiting to act,’’ says Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex, a leading payroll service provider. “We think we know what the changes are going to be, but you never know. We still have to get the basic numbers from the IRS.”
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