Millions of Americans should start seeing larger paychecks as soon as next month as a result of the recently passed tax law, Republican leaders say.
The exact timeline for the increase has not been fixed yet, however. Some employees should also be aware that less money withheld does not necessarily mean their tax burden will decrease next year.
The Republican tax plan, which kicked in on Jan. 1, is billed as a benefit for the working middle class. It is the largest U.S. tax overhaul in three decades.
The $1.5 trillion package includes generous tax cuts for corporations and the wealthiest Americans, and more modest reductions for the middle- and low-income individuals and families.
Here's a look at how working taxpayers could be affected:
BIGGER PAYCHECKS
Republicans who built the tax plan insist Americans will love the new tax law when they see their paychecks later this year.
The Internal Revenue System says employees could see "changes" in their paychecks as early as February. This first month of the tax plan rolling out gives companies and payroll service providers time to adjust.
Until then, the previous tax rates and withholding amounts will apply.
IT'S COMPLICATED
The IRS is "overwhelmed" by the changes in the complex new law. Melissa Labant, director of tax policy and advocacy at the American Institute of Certified Public Accountants, says the IRS is trying to get out the most important information first.
"The withholding tables are at the top or near the top of the list of priorities," she said.
She asks employees to be patient. One thing they can do: Consider updating their Form W-4 "employee's withholding allowing certificate," filed with their company to make sure their information is up to date. Labant advises that should only be done, though, after the IRS updates the Form W-4.
Taxpayers can also use the form to request that their employer withhold additional taxes. That may make sense if, for example, they have substantial outside income such as interest, dividends or capital gains on the sale of assets or investments.
DETAILS MATTER
Tax cuts for individuals and families expire in 2026, while the cuts for corporations under the new law are permanent.
Nonpartisan tax experts predict that most Americans, but not all, will see lower taxes with the new legislation.
But reduced tax rates don't necessarily mean a lower tax bill for 2018. There are significant limitations on deductions, such as the federal deduction for state income, property and sales taxes.
There are some new tax credits but others, like the $4,050 personal exemption, are gone.
The standard deduction is doubled, to $24,000 for couples, but that means it no longer makes sense for many people to itemize and claim other deductions.
LOOKING AHEAD
Just like every other year, taxpayers won't file their 2018 returns until next year. That means taxpayers will not have refunds in their hand before voting in the midterm elections next year. Trump and other Republicans are counting on the tax law to give them a boost in the elections.
