WASHINGTON—Workers will soon notice increases in their paychecks.
The Treasury Department and the IRS on Jan. 11 released new withholding guidance that explains how to adjust payroll systems in line with the new tax law.
“This has been a massive project that we’ve been working on,” said Treasury Secretary Steven Mnuchin at the White House daily press briefing on Jan. 11.
He said starting in February, 90 percent of workers are expected to see an increase in take-home pay because of tax cuts.
This is the first part of a three-step process, he said. By the end of February, the IRS will also issue a new withholding calculator on its official website. This will provide certainty for individuals so that they are not overwithheld or underwithheld, he explained.
“Based upon last year’s withholding tables, approximately 76 percent of taxpayers were withheld so that they had refunds at the end of the year,” Mnuchin said. “We expect, based upon the new tables, there will be no material change in this number.”
The Treasury and the IRS will also release a new W-4 for 2019, later in the year.
Democrats were concerned that Republicans would interfere with the formulation of IRS withholding tax tables.The letter stated, “This will foster the appearance of a larger tax cut in 2018 that then disappears during the 2019 filing season when these same working families file their taxes and discover to their chagrin that they have been under-withheld and have to pay back the previous year’s phantom windfall.”
He said they are trying to make sure the percentage of people getting refunds remains unchanged and once the new withholding calculator is up and running, taxpayers will be able to check for themselves.
President Donald Trump signed the Republican Tax Cuts and Jobs Act into law on Dec. 22 last year. The legislation reduces the individual tax rates, doubles the standard deduction, and increases the child tax credit. It also reduces the number of itemized deductions for individuals.
According to Republican leaders, the changes will simplify tax filing and enable nine out of 10 people to fill their taxes on a form like a postcard. This coming April 15 will be the last time Americans will file their taxes under the existing tax code.
